The first Federal Government Savings Bond auction for the year began on January 8 and ended January 12. The two and three-year bonds, due in January 17, 2020 and January 17, 2021, were offered at 11.098 per cent and 12.098 per cent per annum respectively. The Debt Management Office (DMO) said the attractive yields and tax-free nature of the bonds are incentives for grassroots investors, writes COLLINS NWEZE.
For investors, both local and foreign, returns on investments remain key consideration at all times. The high yields that come with investing in the monthly Federal Government Savings Bond have continued to excite investors interested in building sustainable wealth.
More interesting is that grassroots investors with N5,000 and above have opportunity to invest in the bond, an area that was previously left for the rich.
The first Savings Bond auction for the year commenced on January 8 and ended on January 12. The 2-year Bond, due January 17, 2020 and 3-year Bond due January 17, 2021, were offered at 11.098 per cent and 12.098 per cent per annum respectively.
Analysts said savings bonds in Nigeria like any other place are debt securities issued by the government to help fund development projects. They are debt instruments offered by sovereigns to mobilise resources from the general public, especially individuals and small savers.
The bond offer helps to stimulate and deepen the savings culture among households, assists in the diversification of funding sources for the government and establishes benchmarks for other issuers. It equally encourages financial inclusion across the social and economic strata.
The attractive yield curve and tax-free nature of the bonds remain the incentives to bring more grassroots savers into the financial services net.
Managing Director, Afrinvest Limited, Ike Chioke, said the bond is targeted at low income earners to encourage savings and earn more income (interest) when compared to their savings account with banks.
He disclosed that in order to create incentive for retail subscribers to participate in the new market segment, the DMO tweaked the market structure for the Federal Government Savings Bonds to a minimum subscription of N5,000.00 (additional investments in multiples of N1,000) and a maximum of N50 million.
In an emailed report to investors, Chioke said income from savings bond are tax free and has a competitive fixed interest rate to be paid every quarter, while it is also considered liquid as it would be tradeable on the Nigerian Stock Exchange.
Continuing, he said the Savings Bond Certificate can be used as collateral for loan, just as the bond offers guaranteed return and encourages financial inclusion among low income households. It also enables individuals to enjoy those benefits, which accrue to high net-worth investors in the capital market.
“Afrinvest Securities Limited has been appointed as one of the agents designated through the Nigerian Stock Exchange (NSE) to offer this service to their clients. To invest in savings bond through Afrinvest Securities Limited, you would be required to fill the subscription form (and submit KYC documents), also indicating the amount you want to buy,” the report said.
The Debt Management Office (DMO) led by its Director-General, Ms. Patience Oniha, said the offer is backed by the full faith and credit of the Federal Government and charged upon the general assets of Nigeria.
According to the DMO, the bond also qualifies as securities in which trustees can invest under the Trustee Investment Act. It also qualifies as government securities within the meaning of Company Income Tax Act (CITA) and Personal Income Tax Act (PITA) for Tax Exemption for Pension Funds among other investors. The bond is listed on the Nigerian Stock Exchange and qualifies as a liquid asset for liquidity ratio calculation for banks.
Analysts praised the DMO for introducing the Savings Bond into the securities market for retail investors and taking the instrument to the grassroots. The DMO plans to sustain investor’s interest in the product through public sensitisa-tion of the gains of investing in the Bond, which has a competitive fixed interest rate with its income exempted from taxes.
According to the DMO, the savings bond will help broaden the country’s funding base. The Bond is targeted primarily at retail investors to enable them contribute to the development of the country, while also earning good returns on a safe investment in a sovereign instrument.
The FGN Savings Bond was launched by the DMO in March 2017 and is issued every month through stockbroking firms trading on the NSE. The Bond is promoting the savings culture in the country and enhancing financial inclusion.
Since its introduction in March, the bond has attracted a lot of new investors to the FGN Securities market with its attractive features. The income earned on the bond is exempted from taxes and it can be traded in the secondary market at the Exchange.
Also, the DMO has in recent months taken the bond campaigns to Abuja, Ibadan, Kano, Onitsha, among other cities. The DMO also took the bond campaign to traders within the Federal Capital Territory, Abuja.
Speaking at the Gudu District Market, Director, Portfolio Management Department, Oladele Afolabi, told traders that the Federal Government was committed to promoting a good savings culture among Nigerians. He said the DMO would sustain the campaign to encourage more people invest in the bond. “We are here to let you know that what the Federal Government is offering is real. Government wants you to save and earn good interests on what you save. Saving with your government is the best way to save,” Afolabi said.
The traders were told that the Savings Bond belongs to the people, hence, the decision to involve ordinary Nigerians on the streets, in the markets, churches and mosques.
The Gudu market outing was the first of many other awareness initiatives that the DMO would be undertaking to have Nigerians invest in the bond.
Gudu Amalgamated Traders Association Chairman, Chief Bond Nnamani, urged his members to seize the opportunity offered by the DMO to have additional savings, especially one guaranteed by the full faith of the Federal Government.
The Federal Government issues the Savings Bond every month in tenors of two and three years with a minimum subscription of N5, 000. Interest on the Savings Bond is tax free.
The one-day advocacy and sensitisation workshop in Ibadan was attended by trade union leaders, associations in the Southwest region, where the benefits of investing in the bonds were emphasised.
The DMO said all interested Nigerians can subscribe through stockbroking firms trading with the NSE and accredited distribution agents licensed by the DMO.
The bond, the DMO said, would empower every Nigerian economically and is principally for retail investors with a view to providing opportunity for them to contribute to national development as it improves the savings culture in Nigeria.
A financial expert, Charles Odinaka, said the FGN Savings Bond complements the Central Bank of Nigeria (CBN’s) financial inclusion project.
He said CBN’s financial inclusion vision was aimed at enabling the Nigerians know, understand and develop the ability to evaluate financial products/services so as to lower the number of financially-excluded persons within the population from 46.3 per cent to 20 per cent by the year 2020.
“In addition, financial inclusion enables financial service providers understand the needs of their customers, products and associated risks. The financial inclusion in Nigeria and would continue to work towards this aspiration by extending FGN Savings Bonds to under-banked businesses, communities and individuals across the country.
“Specifically, the FGN Savings Bonds give investors ease of access to investment opportunities. The investors in the bonds will ultimately become drivers of the economy and eventually contribute their quota to the economic growth of the nation. I foresee a situation where all members, youths, students, traders, name it, operating in the economic space or playing field, do not have difficulty in investing their money because of the benefits that come with the bonds,” he said.
On his part, CRC Credit Bureau Limited Managing Director, Tunde Popoola said the government is in need of funds to stimulate and keep the economy running more effectively.
“The bond is capable of boosting savings culture among Nigerians. And it has been brought down to between N5,000 and N50 million, which is affordable to many Nigerians. The funds raised can be deployed into infrastructure funding. We are going to be interested in the next phase of the offer to determine its modalities of implementation. We need to see detailed guidelines for its implementation,” he said.
For the government, the savings bond will help to increase access to funds available for investment in the economy thereby facilitating gross capital formation and economic growth. It will equally enable the individual to enjoy those benefits, which accrue to big investors in the capital market.
