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.
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.
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.
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.
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:
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.
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.