How to invest in and calculate treasury bills in Uganda

Investing your money can be a smart way to grow your wealth and achieve financial goals. In Uganda, Treasury Bills (T-Bills) are a popular low-risk investment option offered by the government. They are essentially short-term loans you make to the government, earning a return on your investment when the T-Bill matures.

This guide will walk you through the steps of investing in T-Bills in Uganda, including how to calculate your potential returns.

Opening a CSD Account: #open-csd-account
Bidding on Treasury Bills: #bid-on-treasury-bills
Settlement and Maturity: #settlement-and-maturity
Calculating Your Return: #calculate-return

Opening a CSD Account (Central Securities Depository Account) (#open-csd-account)

Before you can invest in T-Bills, you'll need a CSD account. This acts as a secure electronic record of your government securities holdings.

Visit a licensed commercial bank that acts as a primary dealer for government securities. In Uganda, most major banks offer this service.
Request a CSD account opening form and fill it out completely.
Submit the form along with any required documents, such as your passport or national ID, and proof of address.
The bank will process your application, and once approved, your CSD account will be activated.

Bidding on Treasury Bills (#bid-on-treasury-bills)

T-Bills are issued by the Bank of Uganda on behalf of the government through auctions held every fortnight (twice a month).

Research: Before an auction, check the Bank of Uganda website for details on the upcoming T-Bill issuance, including the tenor (maturity period) and the minimum investment amount. T-Bills typically range from 91 days to 2 years.
Bidding: Through your bank, submit a bid form specifying the amount of money you wish to invest and the interest rate you're willing to accept. You can choose a competitive or non-competitive bid.

Competitive Bid: You set your desired interest rate. The bank will try to get you this rate, but there's no guarantee your bid will be successful.
Non-Competitive Bid: You accept the interest rate determined by the auction. This is easier but might yield a lower return.

Settlement and Maturity (#settlement-and-maturity)

Auction Results: The Bank of Uganda announces the auction results, specifying the accepted bids and the interest rate (yield) for each tenor.
Settlement: If your bid is successful, the funds will be deducted from your bank account, and the T-Bills will be credited to your CSD account.
Maturity: Hold your T-Bills until the maturity date. On that date, you will receive the principal amount you invested plus the earned interest. The interest is typically paid out directly to your bank account linked to your CSD account.

Calculating Your Return (#calculate-return)

There are two main ways to calculate your return on T-Bills:

Discount Yield: This is the interest rate you effectively earn on your investment. It's the difference between the purchase price (face value) of the T-Bill and the amount you receive at maturity, divided by the face value and then multiplied by the number of days to maturity (divided by 365 for a yearly rate).

For example, if you purchase a 182-day T-Bill with a face value of UGX 1,000,000 at a discount rate of 10%, you'll receive UGX 1,000,000 at maturity. Here's how to calculate your discount yield:

Discount Yield = (Face Value - Purchase Price) / (Face Value x (Days to Maturity / 365)) x 100

Discount Yield = (UGX 1,000,000 - UGX 900,000) / (UGX 1,000,000 x (182 / 365)) x 100

Discount Yield = UGX 100,000 / (UGX 1,000,000 x 0.5) x 100

Discount Yield = 20% per year (adjusted for the 182-day period)

Yield to Maturity: This considers the reinvestment of your interest earnings over the T-Bill's term. It requires a more complex formula and financial calculators can be helpful.

This content is generated by an AI model and verified by the writer