Ndukong Ernest Chefon: Bonds, A Safe Heaven For Your Money

Ndukong Ernest Chefon: Bonds, A Safe Heaven For Your Money: Bonds, A Safe Heaven For Your Money By Ernest Ndukong Chefon A bond is a debt security , under which the issuer owes the holders a debt...

Bonds, A Safe Heaven For Your Money

Bonds, A Safe Heaven For Your Money

By Ernest Ndukong Chefon

A bond is a debt security, under which the issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay them interest or to repay the principal at maturity.

Bonds provide a safe ground for investment for risk averse and risk neutral persons within the business world.  

These sets of people invest in bonds for the predictable income stream and to preserve their capital investment.

The Cameroon Government through the Ministry of Finance recently launched its fourth bond issuance to the tune of FCFA 150 billion, after those of 2010, 2013 and 2014 in which FCFA 200 billion, FCFA 50 billion and FCFA 150 billion respectively were raised.

The attractive 5.5 percent interest bearing “I Owe You” to the State has until October 12, 2016, to be closed to mark the end of a fifteen day opening for a mega jackpot to be stroke by risk-fearing investors. 

This venture is particularly interesting in that not only will the investor be supporting the development of our fatherland, he/she will also be benefiting from a tax free return on investment.

The bond venture is unarguably preferable to a savings account. Directly, it yields an annual interest of 5.5 percent, up and above by over 2 percent to what a savings account will generate.

Misapprehensions about bonds abound, but the fact is that bonds can contribute an element of stability to almost any portfolio.

Bonds are a safe and conservative investment and ideal for anyone not wanting to put their money at risk.

Bonds equally provide security to the holder as they are preferred over shareholders in a company setup in the event of liquidation. Bonds are also less volatile and stabilise the value of one’s investment when other treasury instruments struggle.

In like manner as paradise is pleasurable, the process to get there is not free of sacrifice and risk. Bonds to experience certain perils like interest rate risk, inflation risk, credit risk and call risk. Interest rates are inversely related to bond prices, thus an increase in rates will lead to a fall in bond prices.

Default in bonds is not 100 percent avoidable; therefore, there is some identifiable credit risk involved.

Bonds can be redeemed by the issuer thus making the anticipated profits not being realised- call risk. Inflation can cause tremendous drop in the value of money.

All told, stocks are the much heard and talked about in the business world with swings in the market analysed in economic journals.

Bonds on the other hand don’t harvest the same satisfactory appeal, primarily because; they are unknown to the average investor.

It, however, should be noted that in investment, what is popular is hardly profitable.

Investment in the Government bonds will lead to the manifestation of Idowu Koyenikan’s words that “when money realises that it is in good hands, it wants to stay and multiply in those hands”.