Dry Associates Investment Bank Kenya - Treasury Bills | Treasury Bonds

Treasury Bills, familiarly known as T-Bills, are promissory notes issued by the Central Bank of Kenya (CBK) to the general public for a maturity period (tenor) of less than one year. T- Bills are regarded as investments that carry low inherent credit risk. Certainly there has never been a default and if there were, it would seriously disrupt the entire financial system of the country so it is an article of faith that the Government will do all in its power to honour its debt obligations. Put in simple terms, T-Bills are arguably the safest form of indigenous investment available in Kenya.

The CBK is the nation’s bank and as such is the custodian of all government revenue from the provision of government services, from income tax, VAT and also by way of foreign grants and loans. The sheer volume of these funds enhances the credit worthiness of the CBK and thus by extension, the security of T-Bills as an investment for the general public.

Many corporations and members of the public put their excess capital into bank fixed deposit accounts rather than Treasury Bills. Treasury Bills, however, are available for purchase by the general public and often have the advantage of paying a higher rate of interest than similarly dated bank Certificates of Deposit or Fixed Deposit Receipts (FDRs) as they are termed in Kenya. Treasury Bills carry most of the attributes of their private sector cousins – Commercial Paper.

Treasury Bills are issued weekly by the CBK in units of KShs 1,000,000. The issuing mechanism is actually an auction whereby amounts of KShs 10M or more are accepted by bid. The CBK determines how much of the amount will be accepted and rejects bids which are too low.

Treasury Bills carry a fixed interest rate for the tenor – typically 91 and 182 days.

Unlike other longer term debt instruments, Treasury Bills are “discounted”. This is a process whereby an amount less than KShs 1,000,000 is paid to the government on purchases (that is to say the face value of the Treasury Bill less the interest amount) and the full KShs 1,000,000 is paid back to investors on maturity.

In Kenya, there is a 15% withholding tax on interest earned. It’s a final tax for individuals.

Dry Associates would be pleased to purchase Treasury Bills for clients where appropriate.

The Government of Kenya floats debt issues to pay for a wide range of government activities. Kenya has over the last two years actively pursued a policy of replacing short term Treasury Bills with Treasury Bonds. These Bonds, like the shorter term Treasury Bills, finance the Kenyan domestic budget deficit.

The only essential difference between Treasury Bonds and T-Bills is the tenor or commitment period between investment and maturity. T-Bills by definition must have a tenor of less than 365 days, whereas Treasury Bonds can have a tenor of one, two, three, four, five or more years. As a rule of thumb, the longer the period to maturity the greater the interest or coupon payable. Treasury Bonds are suitable for investors who are able to relinquish immediate access to their capital whose reward is a higher return for forsaking liquidity. Treasury Bonds trade on the Nairobi Stock Exchange.

FRANKLIN TEMPLETON MUTUAL FUNDS

Dry Associates Limited is the distributor in East Africa for Franklin Templeton Investments, one of the world’s leading fund managers. The founder of Templeton, Sir John Templeton, is credited with being the pioneer of international investment through the medium of mutual funds.

The merger in 1992 between Templeton Investments and Franklin Resources Inc. created the largest publicly quoted asset manager in the United States. Franklin Templeton Investments currently serves over 10 million customers in 45 countries and has US$ 371.1 billion of clients’ money under management. It is also the only asset manager included in the S&P 500 index.

Franklin Templeton offers 41 funds outside the US encompassing a complete range of risk versus return options to suit every investor profile. Among the features we like about Franklin Templeton Funds are that many of them contain a large or total bond content (which is intended to reduce or even eliminate risk as far as possible), while those with an equity content are guided by a stock selection method that seeks value, as opposed to simply growth, thus avoiding faddish-type products that can be “hot” one day and disappoint the next. Typically, Franklin Templeton Funds exhibit price to earnings ratios (P/E ratios) of two-thirds of those shown in the comparable Morgan Stanley Capital Index.

Why Franklin Templeton?

More information on the Franklin Templeton Investments including details of individual funds and their managers is available on their official site www.franklintempleton.co.uk At Dry Associates we would be pleased to talk to you, provide relevant materials, answer your questions and guide you through the investment process. You can make your requests known to us through the following e-mail address: invest@dryassociates.com or call us directly on 254-20- 4450521- 4.

See also on this website's "Informative Articles", Sir John Templeton's 16 Rules for Investment Success

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