People in Bangladesh can easily invest their funds in Treasury bonds (T-bond), thanks to a set of initiatives taken by the central bank recently.
T-bonds are securities issued by the government with a maturity period ranging from two years to 20 years. Bondholders earn interest twice a year until they reach maturity.
Earlier, individuals faced huge complexities in investing in the bonds due to the absence of a vibrant secondary bond market and complicated rules and regulations.
The secondary bond market is the place where investors can buy and sell bonds.
The proceeds from the sale of bonds in the secondary market go to the counterparty, which could be an investor or a dealer. In contrast, money from investors goes directly to the issuer in the primary market.
An individual or an institution is allowed to invest a minimum of Tk 1 lakh and above to enjoy the investment opportunity on the instruments.
There is no ceiling on the amount that can be invested, drawing investors. Besides, individual investors get tax rebate against their investments.
Clients now can invest their funds through the government securities investment windows of 44 banks and two non-bank financial institutions (NBFIs).
Individuals and institutions have to open a "government securities investment account" with the banks and the NBFIs to make the investment. The interest provided by the government is deposited at the client's account.
The address and phone number of the officials dedicated to helping the investors can be found on the websites of the respective banks and NBFIs.
The Debt Management Department of the central bank also provides the information to investors to this end.
The interest rate on the T-bills varies as the coupon rate is fixed through auctions organised in the primary market.
The central bank holds a number of primary auctions every month as a part of its efforts to provide required funds to the government. The interest rate is determined during the auction.
The rates usually change in the secondary market depending on the demand. For instance, if a client invests Tk 1 lakh on a bond at 5 per cent interest, they will end up with a lower profit during sales if the rate in the primary market increases.
In such a situation, the principal amount of the bond will be adjusted by calculating the interest rate, which will be earned in the future.
If the rate declines in the primary market, investors will enjoy a better profit while selling the instrument to other clients.
The interest rates on the T-bonds ranges between 2.68 per cent and 6.64 per cent, in comparison to 7.84 per cent and 8.99 per cent a year ago. There are five kinds of T-bonds categorised as per their maturity periods.
The rates have declined significantly in the last year as the demand for government securities in the secondary bond market has gone up in the wake of a declining trend of the interest rate on the deposit products offered by banks.
The majority of banks now offer 3 per cent to 4 per cent interest on fixed deposit schemes.
Investment in the government securities in the secondary bond market stood at Tk 118,908 crore in February, up 213 per cent year-on-year.