In order to be able to create wealth and stay wealthy, it is important for one to be able to save from their income and use these savings to invest in products that can be able to generate some passive income.
One of the investments that can be able to help you generate passive income is treasury bills and bonds. These are essentially government securities which are debt management obligations of the Kenyan government that individuals and organizations can invest in.
Treasury Bills
These are essentially short-term debt obligations which have a maturity period of 3 to 12 months with the minimum capital required to start investing being Ksh. 100,000. Interest payment is done when the bill matures, this is normally charged a 15% withholding tax.
Treasury Bonds
Treasury bonds are long-term debt obligations with maturity dates of 2-30 years, the minimum investment is Ksh 50,000 for regular bonds and Ksh 100,000 for Infrastructure bonds. Bonds offer you interest payments every six months throughout the bond’s maturity. One of the bonds that are sold by the government includes the infrastructure bonds which are meant to finance infrastructure projects, they often have long-term maturity dates of 20-30 years and are tax-free. However, bonds with a tenor of below ten years, are charged a withholding tax of 15%, while bonds with a tenor of more than ten years are subject to a withholding tax of 10%.
Benefits
- Higher interest rates of 10-13% as compared to Money Market Funds (7-10%) and Fixed Deposits.
- Guaranteed returns, the government has no history of defaults, so you are assured that your investment is safe.
- Regular returns, if you decide to invest in a bond, you will be getting returns every six months till it matures.
- Infrastructure bonds are tax free which means that you don’t have to pay the 15% withholding tax.
Investing in Government Securities
Through CBK
To do this, one has to visit the Central Bank of Kenya main offices or their branches in Mombasa, Kisumu, Nyeri, Eldoret, and Nakuru. At the CBK, you will collect the application documents, filling them in and submit them together with other relevant documents.
Once you are able to open a CDS account, you will be able to activate the mobile CBK TMD service that allows you to buy bonds from your phone via their USSD code. *866#
In as much as this may be tedious, it enables one to cut down on your investment costs as third parties charge for the service. However, earlier this year, CBK announced that there are plans to enable online cds account opening which will greatly reduce the hustle that one has to undergo in order to open an account with them.
As a Nominee
If you are looking to invest in government securities but don’t want to go through the hustle of going to the CBK, there are third parties like commercial banks, investment banks and other registered brokers can open a CDS account on behalf of their clients and help them invest in bonds and charge a small fee.
Despite the cost factor, one advantage of this is that you can sell or buy bonds in the secondary market with a third party. That means if you buy a 20-year bond and need your money in the 10th year, you can quickly sell your bond to a willing buyer in the secondary market.