How to Invest in FGN Savings Bond

How to Invest in FGN Savings Bond

FGN Savings Bond

Savings, savings, and savings – a term we encounter countless times. In the realm of financial wisdom, it’s not just about stashing away funds; it’s about making those savings work smarter for you. In this article, we will delve into how stashing your funds into the FGN savings bond is a smarter way to save your money.

What is FGN Savings Bond?

FGN Savings Bonds are debt securities issued by the Nigerian government through the Debt Management Office (DMO). Unlike traditional bonds that often have high entry barriers, these bonds are tailor-made for retail investors, allowing them to participate in the government securities market with minimal investment.

Key Features and Benefits

Accessibility: FGN Savings Bonds are designed to be accessible to a broad spectrum of investors, fostering financial inclusion.

Regular Income: Investors receive interest payments bi-annually, providing a steady income stream.

Security: Backed by the full faith and credit of the Nigerian government, FGN Savings Bonds offer a high level of security.

Flexible Tenures: With tenures ranging from two to thirty years, investors can choose a duration that aligns with their financial goals.

How to Invest in FGN Savings Bonds

There are two markets in which you can access the savings bonds they are:

Primary Debt Market

This is the primary place for the issuance of FGN savings bonds. The DMO conducts the FGN Bonds Auctions Exercise every month. Primary Dealer Market Makers (PDMMs), appointed by the DMO are tasked with submitting bids on their behalf and on behalf of their clients during these auctions.

Who are Primary Dealer Market Makers (PDMMs)? PDMMs are banks authorized by the DMO to act as dealers in FGN bonds. Their key responsibilities include:

  • Taking up, marketing, and distributing the Primary Issues of FGN Bonds.
  • Making markets in FGN Bonds upon request, offering continuous and effective two-way quotes to all PDMMs and non-PDMMs in all market conditions. View the list of PDMM institutions here.

Requirements to buy FGN Bonds: Application forms can be obtained from authorized dealers (PDMMs) or downloaded from the DMO’s website. Complete the forms and submit them through any PDMM.

A list of primary dealers include:

1. Access Bank Plc

2. Citibank Nigeria Ltd

3. Coronation Merchant Bank Ltd

4. Ecobank Nigeria Ltd

5. FBNQuest Merchant Bank Ltd

6. First Bank of Nigeria Ltd

7. First City Monument Bank Plc

8. FSDH Merchant Bank Ltd

9. Guaranty Trust Bank Plc

10.Stanbic IBTC Bank Plc

11. Standard Chartered Bank Nigeria Ltd

12. United Bank for Africa Plc

13. Zenith Bank Plc

Secondary Debt Market

Daily trading of FGN Bonds takes place in the Secondary debt market through licensed broker-dealers, including banks and stockbrokers, on the Nigeria Securities Exchange (NGX) and the FMDQ OTC Securities Exchange. The interesting thing about the secondary market is that these bonds can be traded off if you want to exit and want your cash back.

How Does the FGN Maintain Inventory of the Bonds?

FGN savings bond purchases are confirmed through electronic registration in the Central Bank of Nigeria’s Scripless Securities Settlement System or by the issuance of certificates if required. Interest is paid semi-annually until the maturity date when the principal amount is repaid.

How is FGN Savings Bonds Interest Paid?

Interest payments are made through the issuance of interest warrants (cheques) or direct transfers to the current or savings bank accounts of the investor. Bondholders not wishing to hold bonds until maturity can sell them at any time on the floors of the NGX or through the FMDQ OTC Trading Platform.

Now that we’ve laid the groundwork, let’s navigate the steps to embark on your FGN Savings Bonds journey with a broker or through the secondary market as this is usually the most convenient.

Opening a CSCS Account

Before diving into FGN Savings Bonds, have a Central Securities Clearing System (CSCS) account. This account serves as the gateway to the world of securities trading. Your broker will typically guide you on how to open this account.

Selecting a Brokerage Firm

Identify a reputable brokerage firm to facilitate your FGN Savings Bonds transactions. Many brokerage firms are arms reach. We have the likes of Vetiva, United Capital, ARM, and Stanbic IBTC.

Due Diligence and Research

Knowledge is power. Conduct thorough research on the specific FGN Savings Bond series you intend to invest in. Assess factors such as interest rates, maturity periods, and potential risks to make informed decisions aligned with your financial objectives.

Completing the Subscription Form

Once you’ve selected the desired FGN Savings Bond series, obtain and complete the subscription form. This form captures essential details, including your personal information and investment preferences.

Submit Necessary Documentation

Ensure you provide the required documentation, including a valid means of identification and your CSCS account details. This step is crucial for compliance and verification purposes.

Funding Your Investment

Transfer the funds for your investment to the designated account, as specified by the brokerage firm. Timely and accurate funding is key to securing your FGN Savings Bond series position.

Monitor Your Investment

Stay actively engaged with your investment by monitoring interest payments, keeping track of maturity dates, and staying informed about market developments that may impact your bonds.

FGN Savings Bonds vs a High-Yield Savings Account

Higher Interest Rates: FGN Savings Bonds often offer higher interest rates than traditional savings accounts. The interest is fixed, providing a predictable income stream.

Government Backing: FGN Savings Bonds are backed by the Nigerian government, providing a level of security that may be perceived as higher compared to some private institutions offering high-yield savings accounts.

Fixed Tenures: Bonds come with fixed tenures, ranging from two to thirty years. This can be suitable for individuals with long-term financial goals.

Bi-Annual Interest Payments: FGN Savings Bonds typically provide bi-annual interest payments, offering a more frequent income stream compared to traditional savings accounts.

Final thoughts

In conclusion, Federal Government of Nigeria (FGN) Bonds stand out as a strategic investment choice, particularly when compared to high-yield accounts. The monthly FGN Bonds Auctions, orchestrated by the Debt Management Office (DMO) in the Primary Debt Market, offer investors a direct avenue to participate.

Primary Dealer Market Makers (PDMMs) play a pivotal role, providing expertise and facilitating seamless engagement in these auctions, where bids can be submitted for both individual and client portfolios.

Also, the Secondary Debt Market, a daily arena for FGN Bond trading, is facilitated by licensed broker-dealers on platforms such as the Nigeria Securities Exchange (NSE) and the FMDQ OTC Securities Exchange.

FAQs

1. Who are Primary Dealer Market Makers (PDMMs)?

PDMMs are banks authorized by the DMO to act as dealers in FGN bonds. Their responsibilities include marketing and distributing primary FGN Bond issues and making markets in FGN Bonds through continuous two-way quotes.

2. How can I buy FGN Bonds?

Obtain application forms from authorized dealers (PDMMs) or download them from the DMO’s website. Complete the forms and submit them through any PDMM.

3. Can I sell FGN Bonds before maturity?

Yes, bondholders can sell FGN Bonds at any time on the floors of the NGX or through the FMDQ OTC Trading Platform if they do not wish to hold them until maturity.

4. How is interest paid on FGN Bonds?

Interest is paid semi-annually until the maturity date. Payments are made through the issuance of interest warrants (cheques) or direct transfers to the current or savings bank accounts of the investor.

5. Where can I access FGN Bonds after the Auctions in the secondary market?

Investors can access FGN Bonds in the secondary market through broker-dealers on the FMDQ OTC Trading Platform or through Stanbic IBTC Stockbrokers on the Nigerian Stock Exchange (NGX).

6. What is the Minimum investable amount?

The minimum investable amount is ₦5000

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