Treasury bills (T-bills) are cited as one of the most secure and popular investment options in Ghana.
The risk-free investment entails short-term loans that are guaranteed by the government and used to finance various of its operations. T-bills also offer a benchmark for determining the value of any investment.
However, the maturity of treasury bills spans through a 91-day and a 365-day period with each of them offering different returns on investments.
But despite the high demand for treasury bill investments, not many people are aware of what the financial investment option entails and how beneficial it could determine the value of any investment.
GhanaWeb takes a look at the benefits of treasury bill investments, how the returns on them are determined, and the advantages and disadvantages of opting for T-Bills.
How treasury bills rates are determined
For any treasury bills, the government issues them through auctions which are mostly available to primary bidders also known as banks.
According to the Bank of Ghana which is the main regulator of all financial services, it permits primary bidders of treasury bills to be licensed by the Securities and Exchange Commission (SEC) before any purchase of government securities is done.
But one would ask why the auctions are not open to the general public for purchase but to only primary bidders?
This is because the government issues the T-bills worth a certain value which is known as the face value to be redeemed within the maturity period of 91 or 182 days.
The primary bidders per the Bank of Ghana’s regulations are to purchase the T-bills at a price lower than that of the face value. This purchase option is called discount buying which sees primary bidders pay for the T-bill and the face value of the T-bill as the interest.
For example, if a primary bidder buys a T-Bill with a face value of GH¢1,000 at GH¢900, then the difference of GH¢100 is the interest earned on the investment.
Meanwhile, at the end of each auction, the average of the bids determine the T-bill rate which is published on the Bank of Ghana’s official website.
How individual investors and the public can purchase T-bills
Most financial institutions which are also primary bidders can offer T-bills to the general public with minimum purchases of about GH¢100 or GH¢200 within a 91 or 182 day maturity period.
Though it's a risk-free investment, many will have the option to have their principal and interest deposited in the investor's account at the said maturity period.
The interests after the period can, however, also be deposited in the investor's account and the principal rolled over as re-invested treasury bills.
Another option is that investors would see their interests added to their principal and the total rolled over into the account.
Additionally, many financial institutions in Ghana normally offer investors the opportunity to redeem their investments before the maturity period.
Financial Advisors say this option must be thoroughly explained and requested by the investor before making any purchase. This is rather essential in case an investor may need to withdraw money for an emergency.
Some primary advantages of purchasing T-bills
For treasury bills, there is no risk of losing your investment as long as the government does not collapse.
They also serve as liquid investments that are usually easy to redeem whenever needed.
T-bills offer no charges on investment fees.
No taxes are paid on investments and returns.
T-bills easy to purchase as various banks offer purchase options.
T-bills have a low volatility rate which rises and falls less wildly than other investments.
Some disadvantages of purchasing T-bills
Relatively low returns: It is risk-free so do not expect to earn exceptional returns on this. This is not always true but it is usually true over long periods compared to other assets.
Returns are not fixed: Since the rates are determined by auctions, you could have your T-bill rolled over at a rate lower or higher than your initial purchase.
It draws investment from the stock market: One reason why the Ghana Stock Exchange (GSE) sees low volumes is that T-bills are usually the first option for many investors.
It makes borrowing costs high for businesses: T-bill rates in Ghana are usually high and this draws banks to invest in them to the detriment of businesses looking for credit access.
T-bills are essential investments anyone could make but one must be sure of asking the right questions and seeking the right options before making any purchases.
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