When looking to create passive income from investing in Treasury Bonds, there are certain things you should bear in mind to avoid. Rhina Namsia, the founder of The Acemt Consulting, a training and consultation company that provides financial planning and investment advisory, explains that there are two types of bond markets, the primary and secondary market. On each of these markets, she explains that you should know the following before you invest in treasury bonds:
Primary market:
1). Type of issue – New Issue, Re-opened or Re-issued. They come with different characteristics.
2). Type of Bond – IFB (Infrastructure bond) or FXD will inform you of taxation. IFBs are up until now tax free.
3). Tenure of the bond – the number of years to hold until maturity. This is also dependent on whether the bond is a new bond or a re-opened bond.
4). Coupon rate determination – You need to know if the coupon rate is market determined or already quoted. For market determined note, the coupon rate will tend to be influenced by bids and bidding limits.
5). Sale, Bids Closure & Settlement Dates – These are the most important dates for auction / bid success.
6). Price Quote – Know if it is at par, at a discount or at a premium. If the bond is re-opened, take note of the accrued interests and dirty prices in relation to yields.
7). Redemption Structure – Know how the principal amounts will be given back to you in bits and hence enable you to recalculate your coupon payments.
8). Amortization – Note the limits of part and / or full Amortization.
Rhina Namsia: 5 things you need to understand before investing in anything
The Secondary MarketÂ
Issue Number – This will show you the type of bond and its tenure from the beginning.
Trading Status – This indicates Pre or Post Coupon.
Last Interest payment dates
Next Interest Payment dates
Issue Dates – When it was first issued at the Primary market
Maturity Dates – When it is supposed to mature
Accrued Interest Days
Value (settlement) Date
Dirty and Clean Prices
Coupon Rates – your fixed interest payments
Yield to Maturity – Very important this one
Transaction Charges – These include the Brokerage commission + NSE, CMA, CDSC, ICF Levies. Some are quite high and some very low; it all depends on the agent used.
If you would like to invest in bonds, you can reach out to The Acemt Consulting on 0759798852 consultation, and, or a Masterclass on investing in bonds in Kenya.
