5 Disadvantages of Treasury Bills in Nigeria

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Treasury bill is a popular term in the financial industry and among

business-oriented individuals who know how to make money via

investments. However, before you think of investing in treasury bills,

it is important you have a proper understanding of these investment

opportunities.









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Many governments around the world including Nigeria, use Treasury

bills to raise or control money within the economies. By selling

treasury bills, the Nigerian government is able to keep the money

flowing within the economy. This is because ambitious investors take

advantage of such bonds because of their high-interest rate so as to

make more money for themselves.











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First, what are treasury bills?



Treasury bills are short term bonds that are issued by the Federal

government through the Central Bank of Nigeria. These bonds are issued

in order to meet short term funding for the government. Different

entities such as banks, trusts, institutions, firms, and even

individuals can purchase treasury bills. Treasury bills have varying

tenures; the bonds are issued for 91 days, 182 days, and 364 days

respectively, at a primary market auction where investors come to

place their bids to buy them. The lowest bidders are the ones who own

the deal.



Nigerians prefer investing in Treasury bills because they are

generally safe, when compared to other types of investments.







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However, Is Treasury bills a good or the best investment plan? Before

you as an investor makes any investment, you must first determine

whether it is a viable one. You must establish the strengths and

weaknesses of the investment opportunity, and after that, you can then

make a decision based on the findings. This is the reason for this

article, this article brings you the disadvantages of investing in

treasury bills. You must know that even with some of the advantages

usually associated with investing in Treasury bonds, there are still

disadvantages you should be aware of. Investing in Treasury bonds

might not always provide the best option for your financial situation.



5 Disadvantages of Treasury Bills in Nigeria



Read on below:

Low yield on treasury bills



The topmost disadvantage of investing in Treasury bills is its low

yield or return. Treasury bills are considered the safest form of

investment since they are backed by the Federal government, hence

these bonds offer a low yield. This is especially in periods of high

inflation; you might not be ahead if you invest in treasury bills. The

very nature of Treasury bills means you will not get a very high

yield. You see, while Treasury bills can be the best option for

providing income when you are already wealthy, it is not the same if

you are just building up your wealth. Treasury bills are better for

capital preservation, and for a safety net worth.



Rolling over investments



The CBN does not automatically roll over your investment on treasury

bills. Rolling over investments refer to the act or practice of taking

profits or other proceeds from investments and making another

investment with them. This means that one is investing in more of the

same security. However, you can mandate your bank to roll over the

principal on your treasury bill when it has matured. You can also get

the benefit of compounding interest by asking your bank to reinvest

the interest portion of your Treasury bill after it is paid. Since

investors cannot roll over investments, they have to incur a cost each

time they make a bid.







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Policies of the Federal government by the Central bank



Treasury bills are usually affected by the various policies of the

federal government. For example, the recent drop in interest rates of

treasury bills by the federal government. The drop below 10 percent

was largely as a result of the instruction by the Central Bank of

Nigeria (CBN) in October 2019 which is to ban individuals and other

start-up companies from buying treasury bills from primary or Open

Market Operation (OMO) auctions. The directive to stop selling

treasury bills to individuals and small firms from the 29th of

November, 2019 will not be of advantage to Nigerian individuals as

they will have to purchase the bonds from secondary markets such as

banks at lower interest rates. Financial experts even predict that the

rates might drop further.



Other investment options that are favoured by government policies and

these times are:

Agriculture sector



The agriculture sector is a viable investment option and it does not

take long for you to know why; people will always eat and will always

be willing to pay for food. Also, in recent times there has been

increased attention on this sector from the Nigerian government which

has made the sector even more attractive. Some of the notable policies

taken by the government in 2019 were particularly aimed at boosting

productivity in the agriculture sector.



Equity stake in start-ups



While this may not be a great investment space for those interested in

short term investments, however, if you are willing to invest for 5 to

7 years and have an appetite for risks, this is for you. Start-ups are

definitely one of the best investment options at this time, this is

especially because the market has grown so much and many start-ups are

going public.



Treasury bills are not the best option for those with little money



As mentioned earlier, the yields on Treasury bills are not all that

impressive when you have just a little amount of money. For youngsters

and others who are starting out their lives and looking out for better

ways to grow their money, treasury bills are not the best option.

Other options to look into includes:

Fixed deposits on online savings platforms



While interest rates on fixed deposits in commercial banks are not

impressive anymore due to recent cuts in bank fees by the Central Bank

of Nigeria, online saving platforms are a good way to go. Trusted

online saving platforms include PiggyVest, CowryWise, and Carbon where

you can save your money for longer periods and earn returns that range

between 10 to 15 percent annually.







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Many investors find treasury bills to be a safety net. However, if you

are looking for a high yield, you will have to look elsewhere.





















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