The volatility of prices of oil, the mainstay of Nigeria's economy, makes government revenue unpredictable. When there is revenue shortfall, government resorts to the issuance of bonds to execute vital projects in the economy.
The contemporary approach to investing is to consider the interplay of expected return and risk. An investor should demand higher return for taking on greater risk. Skittish investors who want secure investments should embrace bonds of the Federal Government of Nigeria.
These bonds are risk-free, unlike corporate bonds and equities, because payment of interest and principal is guaranteed by the Federal Government of Nigeria. In the worst-case scenario, government will print money to settle its obligations. Also, they produce tax -free income, and could serve as collateral for loans.
Contrary to the speculation that only extremely wealthy individuals can invest in bonds issued by the Federal Government of Nigeria, it is available to small players. Recently government introduced the Federal Savings Bonds to reduce the minimum investment so that more people,especially retail investors, can be accommodated. The minimum subscription amount is NGN5,000 with additions in multiples of NGN1,000, subject to a maximum of NGN50,000,000. It is issued monthly in tenors of 2 and 3 years, and investors are paid interest quarterly.
The FGN Bonds which are long- term debts issued by the Federal Government of Nigeria range from 2 to 10 years.They attract interest semi-annually. The minimum subscription is NGN50,001,000.
The minimum subscription for the Nigerian Treasury Bills is NGN50,001,000 with tenor ranging from 91 to 364 days. They are short-term securities issued at a discount. The investor's income is the difference between the purchase price and the amount received at maturity.
Bonds are highly liquid; an investor can sell them before maturity by approaching his banker, stockbroker or any of the licensed dealers mentioned above.
