Treasury bills is an investment product that offers you utmost security as it is backed by the Central Government. It is one of the highest yield and liquid investment in the Gambia. However, many young people and small businesses are not making use of this liquid and secure investment product. Why? Most people do not understand the benefits of investing in treasury bill. They do not know how to go about investing in treasury bills in the country. Like any government in the world, Gambia government also uses Treasury bills to control the flow of money in the economy which impacts the interest rates. Treasury bills or T-bills are also used by many governments to raise money from the public.
So then, what are the key features and benefits of treasury bills investment in the Gambia? Here we list 15 for you.
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Features of Treasury Bills Investment
- Treasury bills are securities issued at a discount and are redeemed at their face value at maturity.
- They are direct obligations of the Government of The Gambia, and the Central of Bank Gambia issues the instrument on behalf of the Central Government under the laws of The Gambia. Treasury bills are therefore different from Central Bank bills.
- Central Bank bills are securities issued at a discount, are redeemed at their face value at maturity and have maturities of not more than one year. Central Bank bills are direct obligations of the Central Bank of The Gambia. They are issued under the Central Bank of The Gambia Act.
- Primary Dealer (PD) concerning Gambia banking system means an institution authorized to trade in Government securities and Central Bank bills in the primary market. The primary market is where the dealers buy the financial instruments in this case Treasury bills from the issuer. Currently most and if not all the commercial banks are primary dealers.
- The minimum face value of treasury bill investment is D25,000 and after that in multiples of D5,000. This means you can invest a face value of D30,000, D35,000 but not D32,000.
- There are two types of biddings. Any investment with a face value below D1million is auctioned through noncompetitive bidding. Non-competitive bidders are allocated the weighted average price of competitive bids that are accepted. However, investments of D1 million and above are auctioned through competitive bidding and the investors are expected to quote their price for every D100. Please note CBG is not necessarily obliged to accept the bidder’s price.
- Investors with bids equal to or more than five million Dalasi (D5.0 million) are allowed to submit and settle their bids directly to Central Bank. In another word, if your investment face value is more than or equals to D5 million, you do not have to invest through a primary dealer.
- Proof of ownership – Treasury Bills certificate are issued in “book-entry” form. This means that the certificates of holding treasury bills are kept in electronic record by the Central Bank and is adequate proof of ownership of Treasury Bills by the registered owner. This also implies that Central bank does not issue a physical certificate of investment. However, primary dealers can issue investment advice letter.
- Treasury bills in the Gambia have three buckets of tenors. You can invest for 91 day, 182 day or 364 day Treasury bill.
- Treasury bills are purchased for a price that is less than their face value; when they mature, the government pays the holder the full face value. Effectively, your interest is the difference between the purchase price of the bills and what you get at maturity. For example, if you bought a D25,000 90-day Treasury bill at the cost of D24,100 and held it until maturity, you would earn D900 on your investment. This differs from coupon bonds, which usually pay interest semi-annually.
Benefits of Treasury Bills Investment
- Earns higher interest – As of the time of writing this article, treasury bills in the Gambia earns a higher return than savings and fixed deposit accounts. Whiles savings and fixed deposit are paying 5% to 11%; Treasury bills are paying between 17% – 21% ( as at 20th Jul 2015).
- Those account holders who left a significant amount of their funds in savings accounts are losing money due to inflation. If inflation is 7% and banks are paying you 5% on savings, then you are losing money (-2%) in term of real return.
- Liquidity – You can terminate your investments on call usually through your primary dealers.
- Collateral – Your treasury bills investment can be used as a collateral for borrowing money in many banks.
- There is no withholding tax on the interest earned from Treasury bills investments. The central bank or commercial bank will not withhold any interest or amount due on your Treasury bills investments.
Whiles treasury bills earn more return than term deposits and savings account; it still pays a lower return on investment if compared to the commercial bills or debts. Why? Credit quality. The credit quality of government is assumed to be better than that of commercial companies and individuals. For example, the government can easily generate cash by raising the tax rates, but commercial companies cannot just increase their price.
Well, these are the 15 points on Gambia treasury bills, is there any other thing you want to know about Treasury bills investment in the Gambia? Share your question or comment.