One of the two major factors that every investor looks out for in an investment is its profitability and security. These are the major factors to consider for an investment to be worth it. Although investors may not have all the boxes ticked, investment with one of these two factors, or at least a degree of both, is usually more preferred. The most profitable investment in Nigeria backed by the government is the FGN savings bond, and this article looks at it extensively, including everything else that you should know.
What is the most profitable investment in Nigeria backed by the Government?
Issued by the debt management office (DMO) on behalf of the Federal Government of Nigeria (FGN), they design the FGN savings bond to target retail investors. The bond offers guaranteed quarterly interest payments to investors and a total sum of the principal and interest at maturity. The FGN Bonds are debt securities of the government, that they issue to investors. This is basically like investors borrowing the government money when they need and getting paid back with interest.
Purchasing an FNG bond is considered the safest and most profitable investment in Nigeria backed by the government. Therefore it is absolutely certain that you would get your money back with interest. They have no default risk, and the government spares all incomes earned from tax.
Why does the Federal Government of Nigeria issue Bonds?
According to an official release by the debt management office, on behalf of the federal government of Nigeria, FGN savings bond are issued because:
- To finance government fiscal deficits in a non-inflationary and sustainable manner.
- Bonds enhance the fiscal discipline of the government.
- To refinance maturing debt obligations of the Federal Government.
- FGN bonds establish a benchmark yield curve; this serves as a reference for pricing bonds issued by other bodies, especially the private sector issuers.
- To develop and ensure liquidity in the domestic bond market sustainably.
- Issuing FGN bonds enhances and deepens the savings and investment opportunities of the populace.
- To sustain the development of other segments of the Bond market.
- Bonds help diversify government financing sources.
What are the benefits of investing in FGN Bonds?
The benefits of investing in federal government backed bonds are:
- It is completely safe to invest in and comes with guaranteed returns on your capital. This is because it is backed by the full faith of the Nigerian government
- All your earnings from investing in FGN savings bonds are tax-free
- The bond certificate can act as collateral for a loan in banks
- FGN savings bond provides a steady income with good competitive rates
- It is a way to save towards acquiring an asset like a house, cars, and even for retirement
- Investing in FGN savings bonds enables you to enjoy interest benefits, which increases your overall net worth
How do I invest in FGN Savings Bonds?
You can purchase an FGM savings bond through any of the following channels:
- Primary debt market:
In this market, FGN bonds are actioned daily by the department of debt management. Primarily dealer market makers are the ones with access to this market and submit a bid for themselves and their clients in that regard.
- Secondary debt market:
In the secondary market, the FGN bond has gone a step further and is now traded daily by licensed brokers. They usually do the transactions on the Nigerian securities exchange and the FMDQ OCT Securities Exchange. Licensed dealers include individual stockbrokers and banks.
What are the requirements to purchase FGN Bonds?
According to an official release by the debt management organization, the requirements are:
- Application forms are available at any of the authorized dealers (PDMMs) or download from the DMO’s website at https://www.dmo.gov.ng/publications/other-publications/1058-newfgnbondtenderform-1/file
- Complete the application forms and submit them through any of the PDMMs.
- The common-price auction system is normally in use as opposed to multiple price auctions.
- Payments for the allotment are payable in full on application.
- Minimum of N50,001,000.00 and multiple of N1,000.00, thereafter.
- Investors can also access the FGN bonds after the Auctions in the secondary market through any of the broker-dealers on the FMDQ OTC Trading Platform. They can also go through Stanbic IBTC Stockbrokers on The Nigerian Stock Exchange (NSE).
- FGN bonds purchase is confirmed by electronic registration in the Central Bank of Nigeria’s Scripless Securities Settlement System or by the issue of certificates, where required.
- Interest is paid semi-annually until the maturity date when the principal amount is repaid.
- Payment of interest is through an issue of interest warrant (cheque) or direct transfer to current or savings bank accounts of the investor.
- Bondholders who do not want to hold the bonds until maturity date can sell them at any time on the floors of the NSE or through, FMDQ OTC Trading Platform.
You can simply purchase from a licensed broker on the secondary debt market too. This is easier, especially if you are not financially buoyant enough or uninterested in the stress of this process. They are over a hundred in number, and some of the licensed FGN savings bond brokers are:
- Nigerian stockbrokers limited
- Nigerian international securities limited
- ARM securities limited
- Cashville investments and securities limited
- GRI securities limited
- Zenith securities limited
FGN bonds remain the most profitable investment in Nigeria backed by the government. It is, therefore, 100% secure and a great way to make a lot of interest on your capital over a long time. You can also be on the lookout for the primary market sale, although purchasing through the secondary is easier.