The federal government through the Debt Management Office, DMO just introduced a new investment instrument, Savings Bonds, basically to encourage savings culture among Nigerians. Chinenye Anyanwu, Managing Director/CEO, Dependable Securities, xrayed the benefits and challenges it will throw up in the market. Excerpts:
By Nkiruka Nnorom
WHAT is the FGN savings bonds the Debt Management Office just introduced all about?
As the name suggests, it is a savings bond; it is an instrument, typically, a money market instrument, but somehow the capital market players are able to trade it.
Why should a typical retail investor invest in it?
The closest you can get that looks like it is the treasury bill. First and foremost, it is an open ended instrument; it does not have maximum subscription. In treasury bill, they tell you the units and value that is out for the week. The minimum investment is five thousand naira.
Cultivating habit of saving
It is cheaper than treasury bill in volume. The return is fair for a small investor, somebody putting in five thousand and earning 13 per cent or more. This is not found anywhere; no commercial bank will give it to you. So, advantages abound, so much of it and it is also good for people at the lower rung of the economy to cultivate the habit of saving.
You mentioned that the interest rate is fair. So, don’t you think that investment in equities will be threatened as a result?
It ought to somehow, but it shouldn’t be an issue because the stock market as we know it does not trade on equities alone. It has become an instrument in the stock market and it is as good as any other stock market instrument.
So to the stockbroker, there is nothing lost, the economy is being helped. And the people this is targeting is not equity investors. Five thousand naira is not the people that come to the equity market.
What will be the effect on Deposit Money Banks?
It will affect them. Every discerning small investor will rather pull his money away from deposit money banks and put it in the instrument. In actual sense, it will affect the ‘esusu’ people in the street and it is a good one because ‘esusu’ as far as am concerned, even though it helps them to save, does not really add up to them because it removes a day saving from one month savings.
Savings bond on the other hand, adds to the interest accrued, your full money plus the interest unlike ‘esusu’ that does not pay interest but surcharges the contributor some amount for keeping safe the money. So, this category of persons is the main people the savings Bond ought to affect if it is well publicized.
What should the banks do to stand up to the competition that this is bringing on board?
They have to put on their thinking cap because this ought to affect them and the ‘esusu’ people more. They must either come up with a comparative rate or a fairly comparative rate.
Are there risks involved?
Comparatively, I see virtually no risk.