The rich cannot tell you this secret:How to be a millionaire in Kenya through investing in treasury bills and bonds

Buying and selling of shares on the Nairobi Securities Exchange (NSE) is perhaps the most popular mode of investing in Kenya.

But apart from investing in stocks listed on the NSE, there are numerous other investment products you can go for that will earn you money. These include treasury bills, which are also known as T-Bills and Treasury bonds.

Treasury bills are short term debts that are issued by the government in order to raise money. Under the investment rules set by the Central Bank of Kenya (CBK), you can invest in the 91-day T-bill, the 182-day T-bill or the 364-day T-bill. These T-bills are sold by the CBK weekly.

The CBK can either accept or reject bids from investors. T-bills are usually sold at a discount and redeemed at the amount that must be repaid at maturity also known as par value.

“This means that investors choose the amount that they will receive when the bill matures, or the face value of the bill. They then pay less than that amount when purchasing it,” says a CBK note.

For example, if the value of the T-bill you invest in is Sh. 100,000, you will pay Sh. 90,000 but will receive Sh. 100,000 upon maturity. Bear in mind that the maturity period you choose to invest in will largely influence the amount of discount you get on the value of your T-bill.

Kenyans living in and outside the country, and non-Kenyan citizens are all eligible to invest in T-bills.

To start investing in T-bills, you will need to have a Central Depository and Settlement (CDS) account with the CBK. Non-Kenyans living in the country are required to directly open the CDS account with the CBK.

Non-Kenyans who don’t live in the country can only invest in T-bills as nominees of a local commercial or investment bank, or stock broker. When investing in T-bills, you can either buy directly from the CBK or through licensed investment banks and agencies such as stockbrokers.

T-bills are a good investment option for investors who do not like taking risks. They are also a suitable option for investors looking to invest for the short term. This is because they yield in three, six and twelve months.

With T-bills, the likelihood of losing money is minimal. You can only lose your money if the government defaults on repaying. In essence by investing in T-bills, you will be loaning the government your money.

It is important to bear in mind that T-bills are not traded in secondary markets such as the NSE shares’ platform. But they can serve as collateral when you are seeking a bank loan.

Treasury bills are priced in such a manner that they offer interests to investors that are above the national inflation rate.

When looking to invest in T-bills, the lowest amount you should have is Sh. 100,000 while the highest amount you can invest is Sh. 20 million. Any amount above the minimum Sh. 100,000 is required to be in multiples of Sh. 50,000.

Once your T-bills mature in a three, six or one year period, the CBK will electronically remit the face value of your maturing bills directly to you. You do not always have to redeem your returns.

Instead, you may choose to carryover your portfolio into a new upcoming T-bill issue. To facilitate the rolling-over of your T-bills, you will be required to fill out an application form authorizing this action, and then submit it at the CBK before the pre-auction deadline.

Bonds are methods used by the government to borrow money in local currency. They have maturities of 1 to 30 years. These are called government bonds.

The price of a bond is determined by the time of maturity. You loan the government your money and the government pays you a fixed interest for the agreed duration of time.

If you don’t sell your bond investment in the secondary market and wait till it matures, you will receive the full interest you got when buying the bond.

Bonds are considered stable and do not overly expose investors to lose money. However, since they trade on the NSE, investors can gain or lose money based on their time of purchase and the prices on offer.

If your purpose is to get sustainable income and you have a good amount of cash with no immediate use in your bank account, you can invest in government bonds.

Government bonds are risk free and are a source of sustainable income. “For example, if you have Sh. 5 million in your bank account, and you invest it in government bonds at a coupon rate of 13 per cent, you will be getting a monthly income of Sh. 54,000 without taxes,” says Michael David, a financial and investment coach at MoneySense.

Bonds are also a good option for investors who are afraid of taking big risks. “I am risk averse and I like to spread my investments. I am not the person to have money sitting idle in my bank account.

My biggest reward has been on stocks and bond purchases. Always with very minimal risk even when the country ratings drop,” says Vincent Kamau is a Nairobi-based independent financial specialist involved in performing management accounting and analysis, internal audit, forensic audit, and compliance. “I realized that if I save Sh. 5,000 every month in my bank account, I will have saved Sh. 60,000 by the end of the year. But, if I buy bonds worth the same amount, I will have Sh. 66,000.”

The minimum amount you can invest varies. There’s a minimum of Sh. 50,000 with additional values in multiples of Sh. 50,000. However, if the government is borrowing to fund infrastructure projects, the minimum required is usually Sh. 100,000.

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