The June 2017 FGN savings bond offer has just ended. If you invested, or you are considering to invest in future offers, how well do you understand bonds?
The recent FGN savings bonds present an opportunity for retail investors (i.e you and me) to participate more in the bond (debt) market.
The Federal government wants to borrow more to finance the huge government deficits, and they want to use up all possible avenues in doing so.
And so the FGN Savings bonds was born.

But before you invest, how well do you understand what you are about to do. And what will you stand to gain or lose if you invest in it.

1.What are Bonds?

Bonds are IOUs (I owe you) issued by a borrower to a creditor that specify the payment of a borrower to a creditor.
It is a piece of paper or these days an electronic document.

Bonds are created when a creditor makes a payment to a borrower who in turn receives a paper or a certificate or an electronic document as an evidence.

That paper is called bonds.

Have you ever tried to borrow from your friends before?
If you have, think about borrowing from them, maybe you want to buy a land that costs a million naira. But you only have five hundred thousand naira.
You meet five of your friends and ask them to lend you the remaining five hundred thousand. Let’s say that each of them gave you one hundred thousand naira and you signed a paper acknowledging that you received the sum of five hundred thousand naira from the five of them.

That paper you signed is called bond.

The only difference is that you are not allowed to call what happens between you and your friends’ bonds. With your friends, you don’t even sign papers. They are only assured that since you are their friends, you will pay back.
And when you don’t pay back, your friends will come to your house at night and cause chaos until all your neighbours are awake and find you holding one another on the neck.

Bonds and stocks are both securities.
But the major difference between them is that when you buy the stocks of a company, you are buying an ownership (equity) into the company. While with bonds, the company owes you. A debt which they are obligated to pay back in the future.

When you own stocks, you are part of the owners of the company. You can go around telling your friends that you own that company or this company. You can even question the managers of the company and use it to pump your ego.
But with bonds, you do not own the company. They are only owing you.

Therefore, a bond is a form of a loan. The holder of the bond is the lender, the issuer of the bond is the borrower.
2. Why are bonds important to you as an investor?
Bonds can serve as both medium and long term savings.

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