Treasury bills (T-bills) are one of Ghana’s most popular investment instruments. Despite the fact that they are in high demand, many people are unaware of what they are.
iDO GH News looks at providing investors with relevant information about T-bills, how the return on them is calculated, and the benefits and drawbacks of having them in your portfolio in this article.
WHAT THEN IS TREASURY BILLS?
Treasury bills are short-term loans given to the government to fund various operations. T-bill maturities in Ghana range between 91 and 182 days, with each offering a different rate of return. T-bills are considered a risk-free investment because they are guaranteed by the government; therefore, they are commonly used as a benchmark for determining the value of any investment. If an investment yields less than the yield on a T-bill, you should probably avoid it.
According to our experts, T-bills are determined when the government issues T-bills through auctions. The public is not permitted to attend the auctions. Primary dealers are the only ones who can get their hands on them. These are financial institutions that have been granted permission by the Bank of Ghana (BoG) and are licensed by the Securities and Exchange Commission (SEC) to purchase government securities issued by the BoG.
HOW TO BUY TREASURY BILLS
Most financial institutions sell T-bills to the general public for as little as GH100 or GH200. You can buy it for 91 or 182 days, with the 182-day version offering a higher interest rate due to the longer maturity period. At maturity, you will have the option of having both your principal and interest deposited in your account; having the interest deposited in your account and the principal rolled over (re-invested in T-bills); or having the interest added to your principal and the total rolled over. Many financial institutions allow you to redeem your investment before it matures. Make sure to inquire about this before purchasing, in case you need to withdraw money for an emergency.
Some primary advantages of purchasing T-bills
For treasury bills, there is no risk of losing your investment as long as the government does not collapse.
They also serve as liquid investments that are usually easy to redeem whenever needed.
T-bills offer no charges on investment fees.
No taxes are paid on investments and returns.
T-bills easy to purchase as various banks offer purchase options.
T-bills have a low volatility rate which rises and falls less wildly than other investments.
Some disadvantages of purchasing Treasury Bills
Relatively low returns: It is risk-free so do not expect to earn exceptional returns on this. This is not always true but it is usually true over long periods compared to other assets.
Returns are not fixed: Since the rates are determined by auctions, you could have your T-bill rolled over at a rate lower or higher than your initial purchase.
It draws investment from the stock market: One reason why the Ghana Stock Exchange (GSE) sees low volumes is that T-bills are usually the first option for many investors.
It makes borrowing costs high for businesses: T-bill rates in Ghana are usually high and this draws banks to invest in them to the detriment of businesses looking for credit access.
T-bills are essential investments anyone could make but one must be sure of asking the right questions and seeking the right options before making any purchases.