INVESTMENT IN FEDERAL GOVERNMENT BONDS

A Federal Government Bond is a debt instrument that obligates the Federal Government ("the issuer") to pay to the Bondholder ("the investor") the original principal amount plus interest at a specified maturity date.

Interest is paid semi-annually at a specified coupon rate. Investing in Federal Government Bonds offers the investor dependable income, relative safety and portfolio diversification. Since Bonds typically have a predictable stream of coupon payments and repayment of the principal, it becomes a good investment outlet to preserve and grow capital in addition to receiving consistent interest income.

One major incentive that investing in Federal Government Bonds has over other classes of investments is that interest paid to bondholders receive preferential tax treatment.

Salient Features of the FGN Bonds

• Face value or par value of the bond (principal) printed on the certificate.
• Coupon rate / Coupon yield - This is the interest rate printed on the bond certificate when the bond is issued. It is usually stated as a fixed rate paid every six months to investors.
• Maturity date - This is the day when the face amount of the bond must be repaid and the debt retired.

• Although the coupon rate remains the same until the maturity date, the price of the bond may change depending on the prevailing interest rate at that time of redemption. (This is the case when an investor redeems (sells) before maturity date)

• Tax advantage - Both Corporate and individual investors are exempted from paying tax on the interest received on their investments in Federal Government Bonds.

• The bonds are listed on the Nigerian Stock Exchange and can also be traded over the counter - (OTC)

  How to Invest in Federal Government Bonds

  The Federal Government through her agencies (DMO/CBN) would float series of bonds. The comprehensive time table for the auctions are usually released at the beginning of each year.

  For an investor to participate in any of the auctions through EDL, the following procedures would apply:

• Write a letter to EDL authorizing us to bid for the bond on your behalf stating the face value, bid rate and auction date.

• Visit our office to collect a tender form for the bond.

• Completed application form must be returned to EDL at least two days to the closure date.

• Forward the cheque for the face value to EDL to allow for the normal 3 working days clearing of the cheque.

• Immediately the Bonds certificates or any other documents are received by EDL, they will be forwarded to the client for safe keeping.

  EDL is also placed to offer custodial services at a minimal charge in this respect.

  Method of Determinig the Coupon Rate of any of the Actions

  The marginal rate that clears the volume on auction or the highest accepted rate automatically becomes the coupon or interest rate for the issue.

  REDEMPTION

  Upon presentation of the matured bond certificate, the face value would be repaid on maturity date. It is advisable that clients forward their physical certificates to EDL at least two days before the maturity date to enable us process for redemption on the maturity date. Funds received will be forwarded to the respective clients once CBN credits EDL's account with the same.

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