Do you want to learn how to invest treasury bills in Kenya? Well, here is a simple guide on crucial things you need to take note of to make money.
We shall start by explaining what Treasury bills are and how to invest in them.
How does the Treasury bills work?
Treasury bills are a secure short term investment which offers returns after relatively a short commitment of funds.
This is also a form of domestic borrowing by the government. In practical terms, Treasury securities may be regarded as paper assets that are created by the government.
Also, read more about Government bonds
Rates in Kenya are attractive in Kenya, which provides readily available investment opportunities.
Anybody from individuals to corporates can invest in treasury bonds in Kenya but have to be nominees of a commercial bank or investment bank in Kenya.
Being a nominee means that you can avoid additional fees at the Central bank if you hold a bank account with a local commercial bank.
Also referred to as a T-bill, it is one of the paperless ways in which the public lends money to the government with the aim of re-collecting the cash plus interest after one year.
The CBK issues the securities in Kenya on behalf of the government.
How do you trade Treasury bills in Kenya?
When investing in treasury bills, the market rates determine the interest rates.
Investment Banks and stockbrokers usually participate in primary auctions.
Before any auction takes place, the Central Bank publishes an invitation to bid for treasury bills on the CBK website and newspapers.
The media usually publishes the results after the auction, mainly for transparency purposes.
With maturities of 91 days, 182 days and 364 days.
Find the Treasury bills on offer this week HERE.
You should decide on Treasury Bill maturity length based on recent interest rates and for how long you can commit your funds for.
According to Central Bank’s website, investors must have a minimum face value of Ksh 100,000, with any other additional amount being in multiples of Ksh 50,000.
Also, read about money market funds in Kenya
Advantages of Treasury Bills in Kenya
You will always be assured of your interest and principal because government securities are backed up by a state and states are believed to have the perpetual capacity to levy taxes.
2. No limitations
Anyone who possesses or has access to a little cash can invest in government securities.
In Kenya, you can invest in treasury bills and bonds for amounts as low as Ksh. 3000. This is known as the M-Akiba.
The M-Akiba is, however, open to Kenyan citizens who have attained the legal age of 18 years.
To invest in M-Akiba, you also need to have mobile money enabled phone, in this case, Safaricom’s M-Pesa or Airtel’s Airtel Money, a duly registered line and a valid National Identity card.
3. You earn interest income
Interest income varies with the duration of the treasury bill holding.
Your return on investment in government is almost always guaranteed.
4. Flexible investments
Treasury bonds in Kenya are a flexible investment because investors who wish to pull out before the maturity date can do so by turning them over to CBK for cash through a process called “re-discounting”.
If you decide to re-discount your investment, you will lose a portion of the interest.
This interest would have otherwise have earned more if they were to hold the securities until maturity.
Also, read about investment opportunities in Kenya
The Definitive Guide to investing in Treasury bills in Kenya
1. Open a CDS Account
To open a CDS account with the Central Bank is the first step to investing in Treasury Bills, it is free of charge.
A CDS account can be opened for an individual or a corporate body.
2. Decide How You Want to Invest
With maturities of 91 days, 182 days and 364 days, Treasury bills are offered every week.
When ready to invest, choose from one of these options.
3. Complete and Submit an Application Form
Complete a Treasury bill application form when you are prepared to invest.
Find a sample Treasury Bill Application Form HERE.
4. Get the Auction Results
On auction days, the Central Bank’s Auction Management Committee (AMC) meets at 4 pm.
The committee then determines the cut-off rate and the successful weighted average of the accepted bids.
CBK allows a payment period up until the following day on Monday at 2 pm.
Payments are then submitted by investors in the specified amounts as per CBK’s contract either through a banker’s cheques for prices under Kshs. 1 million, cash or through a KEPSS transfer for more significant amounts.
If you fail to submit payments within the allocated period, you will be barred from future investment in government securities.
6. Maturity Proceeds of Treasury bills in Kenya
The face value of the bill will be remitted into the commercial bank account indicated on the CDS account at the end of the 91-, 182- or 364- day period.
Alternatively, as an investor, you may choose to roll over their securities into a new forthcoming issue, and in this case, they have to complete an application form giving rollover instructions and submit to Central Bank before the closure of the period of sale for that bill.
To be successful, the investments maturity and the value date of the new Treasury bill MUST match for rollover instruction.
The Bank, therefore, does not remit maturing proceeds into investor’s bank account but instead sends only refund amounts generated from the new investment.