It’s a fact that investment is the only way to exponentially grow wealth. But the caveat is that investment often comes with risk, sometimes low or sometimes very high. If you are looking to invest without having to worry about risk or loss, then you can consider the Bangladesh Government Treasury Bond (BGTB). Here’s everything you need to know about BGTB, how to buy, and calculate the return on your investment.
What are Bangladesh Government Treasury Bonds?
Before getting into BGTB, let’s talk about bonds. Bonds are essentially an instrument of debt where the investors (buyers of the bonds) loan money to a borrower (corporations or governments).
BGTB is one such bond where the investor loans money to the treasury department of the Bangladesh government. In exchange, the government offers a coupon rate (interest rate for simplification) on the face value of bonds based on the duration of the investment.
Here are some quick facts about BGTB.
- BGTB is a debt instrument issued by the Bangladesh Bank on behalf of the government.
- Any resident, non-resident, and institutional investors in Bangladesh can invest in treasury bonds.
- The minimum investment amount (face value) is set at 1 Lac BDT. Any amount multiple of 1 Lac can be invested with no upper limit.
- Investments can be done over a maturity period of 2, 5, 10, 15, or 20 years.
- The bonds are freely tradeable and transferable in primary and secondary markets.
- The coupons (yields) are payable on a semi-annual basis.
Difference between Bangladesh Government Treasury Bonds and Sanchaypatra
There isn’t much difference between Sanchaypatra and treasury bonds in the sense that both are debt instruments issued by the government. In principle, BGTB is offered through Bangladesh Bank whereas Sanchaypatra is offered through the National Savings Directorate under the Ministry of Finance.
Typically, Sanchaypatra is issued for a short term ranging between 3 to 5 years. There’s also an upper limit of up to 45 to 50 Lac BDT on individual investment depending on the type of Sanchaypatra. The interest rate also differs year on year which is typically outlined upfront during investment.
Compared to Sanchaypatra, BGTB has no upper limit of investment. The maturity duration can be up to 20 years with a fixed coupon rate for the entire duration of the investment.
In essence, both Sanchaypatra and BGTB are great risk-free investment options. The choice would depend on the investment amount and maturity duration.
How Does Treasury Bond Work?
Treasury bonds are different from other investment opportunities like stocks and Sanchaypatra in the sense that treasury bonds can only be bought in stipulated auctions by the Bangladesh Bank. The bank and the brokerage firms act as the primary dealer/bidder on behalf of the investor in the auction (primary market).
At the onset of every auction, Bangladesh Bank stipulates a coupon rate (yield rate). Since the treasury bonds are bought in an auction, the bidder needs to set the expected yield rate equivalent to the stipulated rate or less. However, according to recent data, setting the expected yield equivalent to the stipulated rate is enough to secure the desired amount of treasury bond.
The auction calendar (https://www.bb.org.bd/en/index.php/monetaryactivity/auc_calendar) shows the dates of auctions in which you can bid for the bonds. Note that, every auction doesn’t have bonds for every maturity date. For example, the auction of 21st May 2024 only has bonds with 10-year maturity. If you want to invest in say 2-year maturity bonds, you will have to wait till the bonds become available on a subsequent auction date.
The bonds bought in primary market bidding can be sold in the secondary market. For example, you need to sell your bonds before maturity. In that case, you will have to submit a written application to the bank or brokerage firm requesting sales of your bond. The bank or the brokerage firm will then direct the sales to BB and deposit the equivalent cash in your account.
How to Purchase Treasury Bonds in Bangladesh
There are two ways to buy treasury bonds in Bangladesh. Treasury bonds can be bought either in banks or in the share market. The process is more or less similar in both cases. Here’s a step-by-step guide to buying treasury bonds.
Step 1: Opening a Bank or BO Account
The first step to buying treasury bonds is to open a bank account or a BO account (for the share market). If you already have an existing account with a bank that acts as a primary dealer for treasury bonds, you won’t have to open a new account.
In the case of a BO account, you can open one with any brokerage firm listed with either DSE or CSE.
Step 2: Depositing the Requisite Amount
Once you have a bank account or a BO account, you will need to deposit the amount equivalent to your desired treasury bond. As mentioned above, the amount can be a multiple of 1 Lac BDT without any upper limit.
Step 3: Application to Buy Treasury Bond
After depositing the money, you will write a formal application to the treasury bond department of your respective bank or brokerage firm requesting the purchase of a treasury bond on your behalf.
You can check the auction calendar and make the application outlining the bond amount, maturity date, and expected yield.
Step 4: Primary Market Bidding
The bank or the brokerage firm will then bid for the bonds on your behalf at the auction. Once the bonds are secured, the bank or the brokerage firms will issue a treasury bond certificate that will outline your ownership.
This certificate is used to sell the bonds in the secondary market or claim the capital on maturity.
Step 5: Over-the-Counter Purchase
Treasury bonds can also be purchased over the counter from respective banks. The maturity period, amount of bonds, and the coupon rate will depend on the BGTBs held by the bank at the given time.
How to Calculate Profit or Loss on BGTB?
The best thing about BGTB is that there’s no loss in it as long as the coupon rate is greater than the inflation rate. Investors can easily check the coupon rates from the Bangladesh Bank website (https://www.bb.org.bd/en/index.php/monetaryactivity/treasury) and purchase accordingly.
According to the 10-year maturity cut-off yield of the last auction (8th May 2024), a 12.15% coupon rate means for every 100000 BDT worth of treasury bonds, you will receive 12,150 BDT yearly as yield.
What to Consider While Buying BGTBs?
- Consider the investment objectives like duration and amount before opting for treasury bonds. For any duration less than 1 year, treasury bills can be a great alternative.
- Even though BGTBs are virtually risk-free, there are always interest rate and inflation rate risks on long-term investments. Consider the economic trend before committing to a 10 or 20-year maturity period.
- Stay informed with market trends and fiscal policies. Factors like growth rate and monetary policy can easily influence the return on BGTBs.
- Consider making BGTB a secured investment channel among a diversified portfolio.
Final Words
Bangladesh Government Treasury Bonds or BGTBs are the perfect investment opportunity for risk-averse investors. In the ever-changing economic landscape and paradigm shift in business frontiers, BGTB offers a guaranteed return on investment with the government itself acting as security. While BGTBs are technically risk-free, it is still important to assess the return options and investment durations before purchasing the treasury bonds.
