A bond is essentially a loan, but in the form of a security. The issuer is equivalent to the borrower, the bond holder to the lender, and the coupon to the interest. Bonds enable the issuer to finance long-term investment with external funds.
Bonds are issued by public authorities, credit institutions, companies and supranational institutions in the primary markets. Government bonds are typically auctioned at set intervals. In Nigeria today, the most commonly traded bonds are those issued by the Federal Government of Nigeria (FGN).
Why opt for FGN Bonds?
If you are an investor looking at investing money for a period longer than one (1) year, or tend to have deposits or placements that have been running for more than a year, FGN Bond investment will likely suit your investment profile.
FGN Bonds represent an attractive savings or investment vehicle for several reasons. They tend to be safer than stocks because, if held to maturity, the principal is not at risk. However, if sold before its maturity date, gains or losses may be incurred depending on the prevailing price at the point of exit. Without exiting prematurely, FGN Bonds provide a regular, steady source of income (typically, interest payments are received every 6 months).
How accessible is the FGN Bond?
Every investor has equal access to invest in FGN Bonds. There are, however, two avenues through which such investments can be executed (Primary or Secondary Market). Notices of primary issues auction are usually placed a week prior to the auction in most of the daily newspapers, informing the public about the various tenors of bonds available for sale. To participate in the auction, all that is needed is for a customer to adequately fund a pre-existing Wema Bank account, and fill the bid form which can be picked up at the Treasury Department. The bid will then be submitted through the Primary Dealer Market Maker (PDMM).