How To Invest In Treasury Bonds In Kenya

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

1. 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.
2. 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.
3. 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

1. 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.
2. 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

1. Application Process: Obtain a Treasury bond application form, available on the Treasury Website or from Central Bank branches.
2. Form Completion: Fill in essential details such as bond issue number, duration, investment amount, personal information, and indicate whether funds are local or offshore.
3. Rate Options: Choose between Non-Competitive/Average Rate for pre-determined coupon rates or Interest/Competitive Rate for market-determined rates.
4. Rollover Instructions: Specify if you wish to reinvest maturing bonds or bills into new government securities.
5. 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

1. Auction Evaluation: The Central Bank’s Auction Management Committee evaluates bids at 4 pm on auction days.
2. Publication of Results: Auction results are published on Treasury Mobile Direct, X formerly Twitter, and the CBK website.
3. 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

1. 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

1. Interest Payments: Receive semi-annual interest payments directly into your commercial bank account.
2. Maturity: Upon maturity, receive the final interest payment and the bond’s face value.
3. 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.