Introduction to Government Bonds Kenya
Updated: Mar 29, 2021
What are government securities? 🤔
Government security is a bond issued by a government authority with a promise of repayment upon maturity.
Government securities are often dubbed the” risk-free investment” – let's find out if it's true.
Yes, tell me more 👂🏽
Government bonds are considered safe since the government will always pay out the investors. It is highly unlikely that the government will default on a bond.
📅Period: You can buy a bond for a period ranging from 3 months to 25 years.
🏦Access to funds: Anytime you can always sell your bonds when you need your money through your broker.
💹 Returns: The returns range from 7% (for the shorter period) to 13% (for longer periods).
💸 Tax: The income attracts withholding tax of between 10% and 15%, only on the capital gained.
Great, I’m keen.😁
How do I buy some?
You can buy the bonds either through:
The primary auction (from Central Bank of Kenya) The Primary auction is held once every month while Treasury-Bills (T-Bills) auctions (91, 182, 364 days) are held every week.
The secondary market (from investors).
☝🏽 Note: To trade in Government of Kenya (GOK) securities, an investor would need to open a Central Depository & Settlement Corporation Limited (CDSC) account with the Central Bank of Kenya. Check out here on how to open an account:
For the secondary market trades, an investor can contact any of the authorized brokers/investment banks. Check out the list here.
Let’s say you invest KES 10 000 in a 5-year government bond with a 10% annual return
you will receive the following fixed income:
Y1-first half: 500 ((10 000*10%)/2) - interest
Y1-second half: 500
Y2-first half: 500
Y2-second half: 500
Y3-first half: 500
Y3-second half: 500
Y4-first half: 500
Y4-second half: 500
Y5-first half: 500
Y5-second half: 500 + 10 000 (initial investment)
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Interested in corporate bonds? Check it out.
Disclaimer: The views expressed in this publication are those of the writers where particulars are not warranted. This publication is meant for general information only and is not a warranty, representation, advice or solicitation of any nature. Readers are advised in all circumstances to seek the advice of a registered investment advisor. Full Disclaimer