What Is the Difference Between Treasury Bills, Commercial Papers, and FGN Bonds?

Ok, good evening

Treasury bills is you borrowing the government money for a short term (within one year) , the government uses the money to build or finance infrastructure and laters pays you  back your money (capital) with interest but a 10% withholding tax will be deducted automatically

While

Commercial papers is you borrowing money to companies not government and it’s for short term always within 6 months

It’s comes with interest rate higher than treasury bills and FGN bonds.

Because you are lending to a company not government, it’s more risky. But that does not mean you shouldn’t invest. And its taxable at 10% withholding tax.

While

• FGN bonds is the government borrowing money from you but for a long term usually 2-3 years, and the interest will be paid to you quarterly, 4 times a year till at maturity you will receive your full capital. one thing about FGN bond is that it’s tax free and can also be used as a collateral for loan in the bank

So the positive and negative accompanied is 😊

Firstly, investment comes with risk, without risk, investment is not complete

As for treasury bills  is backed with  full faith of the federal Republic of Nigeria, the government must to pay you but it  has a lower return compared to commercial papers and FGN bond.

While commercial papers, a particular company may not do well after borrowing funds from the public which may cause delay in payments, etc.

FGN bonds comes with a lower return compared to commercial papers, but is backed by the full faith of the federal republic of Nigeria and one important good thing is that, it can be used as a collateral to get loan from the bank if you don’t have a landed property

So if you cannot really take risk, you go for tresurry bills, if you need to preserve you capital while earning steady returns, you go for FGN bonds, but if you can tolerate high risk in order to gain higher returns, you go for commercial papers

Thank you.