How treasury bills work

The Money Engineer

Have you ever considered investing in treasury bills? If you have not it is probably because you had no idea how they work and didn’t bother much to find out. Personally I invest about 20% of my net income on a monthly basis in treasury bills. Once my investments reach a certain amount I will invest them in another project. I find this much better than leaving my savings in a bank account. Also it works for as I am busy at my full time job. I earn on average 10% net of taxes per year. This means if I invest UGX 10m I earn 1m per year. Because I invest monthly I earn different amounts as the rates keep varying depending on demand/supply forces.

Treasury bills are issued by Bank of Uganda (BOU) on behalf of the government. It is how government borrows money domestically from Ugandans. Every two weeks BOU holds an auction for treasury bills. Bids are submitted through the primary dealers. Treasury bills have different maturity periods. You can invest for 91 days, 182 days or 364 days.

In order to participate simply go to any primary dealer or licensed broker. Personally I use Crested Capital. First you open an account by filling out some forms and provide an ID and passport photos. You then deposit funds on their accounts and sign a fixed income agreement. You then complete a fixed income purchase order stating the period (Tenure) the funds should be invested for. Then you sit back and wait for the results of the auction. If your bid has been successful your broker will send you a contract note showing exactly how much has been fixed, the interest rate obtained and the maturity date. You then relax and wait for the funds to mature. The principal + interest will be paid into your account on the maturity date. You have the option to continuously reinvest and so benefit from the compounding effect.

The minimum investment required is UGX 100,000 only!!!

The beauty with treasury bills is that they are almost risk free and you don’t hassle at all to earn a 10% return. Plus the money is available in the short term. For instance if you invest UGX 50m you earn 5m per year or UGX 420k per month. It is like having a rental which pays you 420k per month without the hassle of having to deal with tenants!

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