How to Invest in FGN Bonds in Nigeria – Everything You Should Know About FGN Savings Interest Rates & Current Yields Including How it Works and Get Started
If you have been receiving emails from your stockbrokers on latest FGN savings bond but don’t understand bond as a fixed income investment, here is a simple explanation and detailed guide on how it works, including steps to invest in FGN bond.
FGN Bond is a bond issued by the Nigerian government in exchange for cash at a given interest rate and a repayment period. It also states how payments of the principal and interest will be made. A bond is a confirmation from a borrower that it borrowed money from a lender at a given interest rate and repayable over a period. They also include a minimum amount that can be subscribed to by the lender and in what multiples.
The FGN bond is a major source of finance for capital projects; otherwise known as longterm infrastructural investments. This is the reason bond tenors span for up to 20 – 30 years.
Why you should invest in FGN savings bond
When you invest in the FGN bond, you earn a passive interest income that will be paid quarterly directly into your savings or current bank account. Interestingly, you really do not need to have millions in your bank account to invest as anyone with as little as N5,000 can invest in the bond.
If you have goals you would like to invest or save towards; house rent, wedding, occasion, school fees, or retirement, investing in FGN Bonds has proven to be one of the good ways to achieve these goals without risk.
How will the interest and principal be paid?
The interest will be paid quarterly into your bank accounts while the principal will be paid at maturity depending on what duration you subscribe to. Retail investors looking to invest in the FGN bond only need a minimum of N5,000 to invest. Subsequent investment over N5000 will be in multiples of N1,000, Meaning that an investor cannot invest N,5,500. It’s either N6000 or N13,000 or N30,000. The maximum amount a single retail investor can invest in the FGN bond is N50 million.
What if I decide to sell before maturity?
Investors need not hold on to the bond until maturity. If you need cash anytime during the duration of the bond, you can sell your bond in exchange for cash. However, the portion of the interest that you are not entitled to earn because you have sold will not accrue to you any longer. For example, if you buy April 24 and sell July 14, because you cannot wait until April 2023 to get your principal, you will only be entitled to the interest accrued between April 24 and July 14.
Bonds have certain characteristics similar to stock; their prices can often be higher or lower than their face value. The face value of a Nigeria bond is typically N1000. So assume an investor bought FGN bond at N1m and at an interest of 13 % per annum. It means that for every N1000 of your investment, such an investor will earn N130 (also known as the coupon rate). So, if you decide to hold your N1m to maturity, you will earn N130,000 annually.
In the secondary market, bond prices behave like stocks and react to the forces of demand and supply. Supposing lending rates in the country suddenly rise to 16%, it means that the bond that earns you 13% is no longer attractive as the FG will only continue to pay N130 for every N1000 face value.
How to Get Started Investing in FGN bond
The easiest way to invest in bond is through your stockbroker. For me, I receive alerts on new FGN savings bond from my broker which contain minimum investment, tenor and applicable interest rates.
For more information about the FGN savings bond and their current interest rates, visit the Debt Management Office Website