How To Invest In Treasury Bonds In Kenya.
Investing in Treasury bonds in Kenya is a straightforward process that allows individuals to earn fixed returns by lending money to the government. Here’s a detailed guide on how to invest in Treasury bonds step by step:
Step 1: Open a CDS Account
- Purpose of CDS Account: The Central Depository System (CDS) account acts as a registry for government securities. It’s where your Treasury bonds will be held electronically.
- Requirements for Individual CDS Account:
- Application: Obtain a mandate card from designated Central Bank of Kenya (CBK) branches or currency centers.
- Completion: Fill out the mandate card with accurate details including your contact information, commercial bank account number, and ensure it’s signed by two bank signatories.
- Documents Required: Submit a certified passport-sized photograph, along with a clear copy of your National ID, passport, or alien certificate for identity verification.
- Corporate Entities: Follow similar steps but include additional documents like certificate of incorporation, board resolution minutes, audited reports, and tax exemption certificate (if applicable).
Step 2: Choose Your Investment
- Types of Treasury Bonds: Decide on the type of Treasury bond you want to invest in based on your financial goals and the available options:
- Fixed Coupon Bonds: Pay fixed interest semi-annually and repay principal at maturity.
- Infrastructure Bonds: Specifically fund infrastructure projects.
- Zero Coupon Bonds: Issued at a discount and pay no periodic interest, with investors profiting from the difference between purchase price and face value at maturity.
- Review Bond Prospectuses: Monitor upcoming bond prospectuses on the Government Treasury Website to understand bond details, interest rates, repayment terms, and any applicable taxes.
Step 3: Fill Out an Application Form and Submit
- Application Process: Obtain a Treasury bond application form, available on the Treasury Website or from Central Bank branches.
- Form Completion: Fill in essential details such as bond issue number, duration, investment amount, personal information, and indicate whether funds are local or offshore.
- Rate Options: Choose between Non-Competitive/Average Rate for pre-determined coupon rates or Interest/Competitive Rate for market-determined rates.
- Rollover Instructions: Specify if you wish to reinvest maturing bonds or bills into new government securities.
- Submission Deadline: Submit your completed application form to the Central Bank’s head office or designated branches by 2 pm on the Tuesday of the bond’s sale period.
Step 4: Auction Results and Payment
- Auction Evaluation: The Central Bank’s Auction Management Committee evaluates bids at 4 pm on auction days.
- Publication of Results: Auction results are published on Treasury Mobile Direct, X formerly Twitter, and the CBK website.
- Payment Due: Payments for successful applications must be made by 2 pm on the following Monday (or Tuesday if Monday is a public holiday).
Step 5: Payment Methods
- Payment Options: Use cash, banker’s cheques (for amounts under Kshs. 1 million), or KEPSS transfer (for larger sums) to settle your payment obligation.
Step 6: Receive Returns and Manage Maturity
- Interest Payments: Receive semi-annual interest payments directly into your commercial bank account.
- Maturity: Upon maturity, receive the final interest payment and the bond’s face value.
- Rollover or Redemption: Decide whether to reinvest in a new issue or redeem your investment.
Important Considerations
- Risk: Treasury bonds are considered low-risk due to government backing, but market conditions and interest rate changes can affect bond prices.
- Tax Implications: Understand tax obligations on interest income and capital gains from Treasury bonds.
- Accessibility: Regularly check Treasury announcements and prospectuses for new bond offerings and opportunities.