How to Invest in Treasury Bills (Individual Investor)
What is a treasury bill?
A treasury bill is a short term borrowing instrument issued by the Kenyan government through the Central Bank of Kenya to raise money on short term basis to cover government current expenditure obligations.
Treasury bills are issued for a period of 91 days(3 months), 182 days (6 months) and 364 days(1 year) after which they mature giving an investor his/her capital plus interest.
Treasury bills are sold by the government at a discount price which would indicate the investor’s expected return after the required duration.
For example, a treasury bill of Kenya shillings 100,000 issued by the government at 15% for 182 days has the following implications for the investor.
Day 1 : (93,041) Amount paid by the investor for the Treasury bill
Day 182 : 100,000 Amount received from the government after 182 days
Interest earned : 6,959 Amount of interest earned by the investor
Who can invest in Kenya government treasury bills?
Any resident/ nonresident individual can invest in Kenya government Treasury bill in the following two ways:
- By opening a CDS account with Central Bank of Kenya
This account can be opened using your national identification card or passport and a photograph. It is similar to a normal bank account. All your Treasury bill transactions will be effected in this account. You would be required to have an existing local commercial bank account for the payments of the Treasury bill to be transacted.
- By being a nominee of a commercial bank
This can be done by most commercial bank in Kenya. Visit your current bank or any bank and inquire procedure for opening a nominee account.
Also Read: Four Simple Steps to Manage Your Loan
Why invest in a treasury bill?
Treasury bill investments are risk free investments meaning that the investor is guaranteed to get a return. Though the return may be a bit lower than conventional investments like real estate and starting a business, there is no loss making when investing in treasury bills.
The other advantage is that your money will be secure because the government cannot default on payments hence you will be able to access your money when it falls due.
When can one invest in a treasury bills?
Treasury bills are issued every week by the government hence one can invest whenever he/she has extra cash.
One can invest in Treasury bills from Monday to Thursday of any given week during working hours because results for the treasury bills are released on Friday of the same week. Deadline for submission is 2.00 PM Thursday every week.
What rate should you invest at?
Treasury bills are invested through bidding. Bidding is an auction like process where someone requests for a price he/she is willing to pay or receive.
Treasury bill rates are determined by bids from investors among whom you are included. You can bid any rate that you want. The issue that may arise is that if you bid too low, you will invest your money at a lower rate and if you bid too high you will miss out on the investment opportunity because the government will always take lower rate treasury bills first before higher rate ones.
The alternative is to bid at average (i.e in the Treasury bill form at the rate section, you will write “Noncompetitive”). This means that your investment in the Treasury bill will be at market average rate (determined by Central Bank of Kenya) which is a good rate and you are guaranteed of getting the Treasury bill investment. The only catch is that the amount allowed for average bids is up to Kenya shillings 20,000,000 per investor.
I may advice beginners to bid at average to avoid missing out until they have an understanding of the Treasury bill market.
What is the process for investing in a treasury bill?
- For an individual with a Central Bank CDS account
- Download treasury bill form from the Central Bank of Kenya (CBK) website here.
- Fill in the Treasury bill form with the relevant details. The following fields must be included.
- Issue Number – Take latest issue number from the website here.
- Duration – The duration can be 91,182 or 364 days.
- Value Date – The value date is when the treasury bill will be paid for by you. This will also be given to you when you get the treasury bill results or you can find it on CBK website here.
- Total Face Value – Face value is the amount the investor wants to invest (minimum lot is Kenya shillings 100,000)
- Investor details – Name, Telephone Number, CDS Account Number
- Mode of payment -This can be in cash or through a real time gross payment(RTGS) from your commercial bank account.
- Source of funds – your source of funds will be local. Choose off shore if it is from outside Kenya
- Submit the form at any Central Bank of Kenya branch by 2.00 pm Thursday of the given week.
- Call Kenya Central Bank on 020286100 one day after submitting your bid to inquire if you have been successful in your bid.
- If successful, go to your commercial bank to transfer the payment of the Treasury bill on value date indicating your Central Bank account CDS number and Name.
- The investment would be automatically credited to your bank account after maturity of the Treasury bill.
- For an individual with a nominee account
Your commercial bank would do all the above process for you if you have a nominee account. The only difference is that you will be charged a percentage fee for the services provided by your bank. The charges vary from bank to bank.