Good Investment, No Risk- The Logic Behind Treasury Bills

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Are you looking for a safe way to invest your funds without worrying about it going bad? Treasury bills could be the closest answer. The logic behind every investment is that the higher the risk, the higher the return and vice versa. Treasury bills to an extent broke has put a question mark to that logic. This is because the returns on Treasury Bills are relatively high despite its very low or almost non-existent risk.

Treasury securities refer to investment opportunities issued by the Federal Government of a Nation. In other words, the government borrows from people and pays back with interest.  It can also be referred to as Sovereign securities and they include:

Treasury Bills
Treasury Notes
Treasury Bonds

The difference between these three is the length of time and the mode of interest payment.

Picture credit: Tribune NG


WHAT ARE TREASURY BILLS?

Treasury bills are short term sovereign debt securities that mature in one year or less. In other words, Treasury bills also known as T- Bills is a debt instrument released by the Federal Government of a Nation that is paid back within one year or less than one year.

Just the way institutions and people borrow money to achieve some goals from other institutions or individuals, the government borrows money from individuals and institutions to achieve some of their set goals to pay back within one year or less through Treasury Bills.

Treasury Bills are released by the Federal Government through the Central Bank to provide funding for the Government. It is also used to control money supply in the economy.

HOW IS INTEREST RATE PAID?

Treasury bills are sold at a discount and the full face value collected at maturity. E.g. if you want to buy treasury bills worth ₦1,000,000 at 20% interest for the period of 182 days, you will pay the sum of ₦900,273.9726 and keep the sum of ₦99,726.0274 which is your interest. At the maturity date of your investment (i.e. the end of 182 days), ₦1,000,000 will be paid back to you. In other words, your interest is paid to you on the very day of your investment and the full amount paid at the end of your investment tenure which is known as the maturity date.

HOW CAN TREASURY BILLS BE GOTTEN?

Treasury bills can be gotten from authorized dealers such as investment houses. It can be bought at the primary market which refers to buying at the time of release from the government through an authorized broker or from the secondary market which means buying from an existing investor who probably is in urgent need of funds and doesn’t want to keep the investment until maturity.

Treasury Bills are short term and can be more easily sold off than any other Government investment instruments hence it is said to be more liquid.

BENEFITS OF TREASURY BILLS

It is risk free. Payment is guaranteed at the end of the investment period which is known as the maturity date.
It can be easily converted to cash
You earn your interest upfront
Interests earned on Treasury bills are tax exempt. That is, you do not pay tax on T bills interest.

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