Business

Six Key things to Consider before buying a Treasury Bill

Six Key things to Consider before buying a Treasury Bill

As humans are growing, investment is one of the ventures they think of for a long-term earnings that will provide a hope for their families and to make their dreams come true.
Investment can help money to grow faster. Although it carries some potential risks the rewards are worth to take that risk.

There are many asset-classes out in the market for investments and one investment avenue that can allow to accumulate wealth faster than any other avenue is stock investing. However, amongst other investment avenues, it is also risky and herein returns are based entirely on market performance.

But, if done right, it can generate an income that won’t only cope with the inflation but also provide one with the wealth that helps to achieve financial goals.

Since stock investing is quite risky especially for an entry-level investor, Treasury Bills (T-Bills) becomes advisable for many starters.
A Treasury Bill (T-Bill) is a short-term government debt obligation backed by the Treasury Department with a maturity of one year or less.

Treasury bills are usually sold in denominations of $1,000. However, some can reach a maximum denomination of $5 million in non-competitive bids. These securities are widely regarded as low-risk and secure investments.

The Treasury Department sells T-Bills during auctions using a competitive and non-competitive bidding process. Noncompetitive bids—also known as non-competitive tenders—have a price based on the average of all the competitive bids received. T-Bills tend to have a high tangible net worth.

T-bills can have maturities of just a few days or up to a maximum of 52 weeks, but common maturities are four, eight, 13, 26, and 52 weeks. On average, the longer the maturity date, the higher the interest rate that the T-Bill will pay to the investor.

Notwithstanding, certain factors are to be considered while making TBill investment decision, to avoid common pitfalls.

1. Understand Your Finances

Before you start investing, you need to sit down and look at your financial situation. Understanding what your financial situation is and how much funds you have available to invest will help you make the best decisions on when to start investing.

2. Before investing know the pros and cons.

Pros and Cons of T-Bills

Pros

Zero default risk since T-bills have government guarantee. T-bills offer a low minimum investment requirement of $100.

Interest income is exempt from state and local income taxes but subject to federal income taxes.

Investors can buy and sell T-bills with ease in the secondary bond market.

Cons

T-Bills offer low returns compared with other debt instruments as well as when compared to certificates of deposits (CDs).

The T-Bill pays no coupon—interest payments—leading up to its maturity.

T-bills can inhibit cash flow for investors who require steady income.

T-bills have interest rate risk, so, their rate could become less attractive in a rising-rate environment.

3. Know the number of months or years you are buying the TBill

As earlier declared, long-term year gives much earning than a short-term investments. However, it all depends the amount in your pocket. Doing short-term investment is better than just saving the money in the bank.

4. Is Treasure Bill the Best Option For a Ghanaian Starter

You earn a fixed rate of interest which yields or gives a steady source of income. Treasury bills and notes are rated as ‘risk free’. Returns are absolutely certain in monetary terms since they are backed by the full faith and credit of the Bank Of Ghana (BOG) and Government Of Ghana (GOG). The interest rates quoted are competitive.

Treasuries can effectively be used as collateral for a loan. Treasuries can easily be sold or discounted. Statements can be used when applying for visas.

5. What will happen to the Investment after Maturity

At maturity, the bank which the broker will credit your account with the full value of the investment. On instruction, the bank will re-invest (roll over) your investment immediately. Transfer the accrued interest to the bank account or alternatively issue a cheque. Pay interest on maturity and reinvest the principal.

6. You must know if the instructions given can be changed if the need arises

Every bank will give you the flexible terms to change the instructions. For instance, an investor might choose rollover with the value gained but due to an issue you might want to change. A minimum of seven working days is required for any change of instruction before the maturity of a bill.

Source: www.spotonnews.net

Joyceline Natally Cudjoe

An Entertainment Columnist, Content Writer, Blogger, Novelist, Poet, and a Publicist. For business or story tip off, contact me on +233 24 646 6866 or email: [email protected]

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button