The maxim “all hands are not (created) equal” rings true in many spheres of endeavour, and perhaps is most true when it comes to investments. From the quantum of available disposable income to the needs and aspirations of the investor, as well as their level of understanding of financial markets to their tolerance for risk, there is no one-size-fits-all box.
As a matter of fact, there is a wide range of investment vehicles available for every investor class. These asset classes are, more often than not, defined along the risk-return spectrum. They include the least risky – cash and its equivalents, and progress to fixed income securities and to higher risk equities and the ultra-speculative – cryptocurrencies, which carry the added risk of not having any regulatory oversight in many jurisdictions.
The basic rule of thumb is that the higher the risk, the higher the potential return This simply means the investor is likely to gain more (but also equally likely to lose more) from investing in the higher-risk asset classes.
Since most investors have clear and present obligations that fall due periodically, the most conventional asset class for the vast majority of investors is that which provides fixed and periodic returns while safeguarding their initial investments. If there is a starting point or only one option for most investors, it can be Fixed Income Securities.
Fixed Income Securities 101
Fixed income securities, in the simplest form, refer to a debt instrument that pays fixed periodic interest amounts called coupon payments and the eventual return of principal at maturity to the investor. It can also be referred to as an investment asset class that provides contractual cash flows. It has the twin goal of preserving capital while providing a steady stream of income to the investor.
There are various types of Fixed Income securities. Predominant among them are Bonds, Treasury Notes, Treasury-bills, Bank Fixed Deposit and other Money Market Instruments.
Bonds are debt instruments in which an investor loans money to an entity (corporate or government) that borrows the funds for a defined period of time at a fixed interest rate. They have tenors of two (2) years and above. Interest on bonds is usually paid semi-annually. Bond prices have an inverse relationship with interest rates: that is, when interest rates rise bond prices fall and vice versa.
A Treasury bill is a short-term investment product (from 91, 182 and 364 days) offered by central banks on behalf of government. It offers a one-time interest payment at maturity. The security (bill) is sold at a lower price than its face value, or a discount. When the bill matures, investors are paid the face value amount. The interest earned or return on the investment is the difference between the purchase price and face value amount of the bill.
In return for depositing money with a bank for a predetermined period, the bank pays interest to the account holder. This is known as Bank Fixed Deposits (BFD). Interest rates on BFDs are normally lower than bonds, but higher than traditional savings accounts.
Money market instruments unlike bonds, are not long-term in nature. They usually have tenors of less than a year. However, like other fixed income securities, they too bear a fixed rate of return. There is a wide variety of money market instruments such as commercial papers, repurchase agreements etc. which are commonly traded in the open market.
Think of individuals who have an amount of money and would like to invest but are risk-averse, and as such not interested in stocks, currency speculation and trading or crypto currencies etc. but also want the principal amount invested intact as part of saving toward their child’s education from 2027. They can consider fixed-income investments.
It is worth noting that the return from this asset class are safer and secured as it is usually backed by the true faith of the issuing entity (Government, Financial Institutions, Blue Chip Companies and Corporates). However, ‘fixed returns’ offered by unscrupulous entities have plagued, and sadly will continue to plague, the financial market.
Fixed income investments come with comparatively lower risks. but they are not entirely risk-free. They are subject to interest rate risk – that is, a change in the market value of the investment as a result of a change in the market yield (interest rate). Also, they are affected by credit risk – the possibility that an issuer could default on its contractual obligations as and when they fall due, especially for corporate issuances.
Assuring investors of guaranteed returns irrespective of whatever happens in the financial market is not entirely true due to the risks enumerated above. Conventional wisdom suggests that investors should diversify their portfolios; and this can be done across different or within the same asset class. Investors can, and perhaps should, have a mixture of Fixed Income instruments of varying maturities and coupon (interest) payments.
It is easier to achieve this when there is enhanced access to a secondary market, especially for non-institutional investors.
Overview of the Ghana Fixed Income Market (GFIM)
The year 2015 marked a watershed moment for the fixed income market in the country, as the Ghana Stock Exchange (GSE) launched the Ghana Fixed Income Market (GFIM) to facilitate the secondary trading of all fixed income securities at large, and other securities to be determined from time to time.
The market is being regulated by the Securities and Exchange Commission (SEC) and Bank of Ghana (BoG). The key objectives of the GFIM are to: bring about greater efficiency; better price discovery; increased liquidity; and greater transparency in the secondary trading of fixed income securities in Ghana; as well as bring secondary trading activities in the fixed income securities in Ghana to international best practice standards. To maintain an orderly and efficient market in securities on the GFIM, members and their registered traders shall comply with the Code of Conduct and general principles as prescribed by GFIM.
The bouquet of instruments currently traded on the GFIM include government of Ghana Treasury bills, notes and bonds; Bank of Ghana money market instruments; quasi-government of Ghana institutions’ money market instruments, and corporate notes and bonds. The market can in the future enhance capital formation through local government bonds, district bonds, green bonds and other asset-backed securities.
This singular move has not only opened up the market for state and private institutions to access more funds, it has also provided retail investors participation, improved liquidity and enhanced price discovery across the board. The GFIM is duly regulated to guard the behaviour of investing communities.
The initiative has been so well received, as evidenced by the sheer volume of trades recorded on the market since its inception. The standardised fixed income market has grown exponentially from a volume traded of 5.2 billion in 2015 to 208.7 billion in 2021.
Navigating the investment waters, even for a rather conservative option such as fixed income security, can be a daunting task for many investors. There is, however, a respite with ACCESS Bank.
With an industry-leading Treasury arm and strong research capabilities, in-depth understanding of financial markets, coupled with the highest regard for ethics, investors are guided and advised on what financial decisions to take.
Over the past half-decade, we have consistently been in the top-half of all banks in the country for key metrics such as total operating income, total assets and deposits, net interest revenue, profit before tax (PBT) and profit after tax (PAT).
At the end of the 2021 fiscal year, ACCESS Bank posted a 23 percent rise in revenue, even as total assets and PBT reached GH¢7.491billion and GH¢501million respectively.
It then comes as little surprise that in the past year ACCESS Bank was adjudged:
- Most Innovative Retail Banking Brand – The Global Brands Awards
- Best CSR Bank – The Global Brands Awards
- Best Bank in Customer Service – The World Economic Magazine Award
- Best Retail Bank – The World Economic Magazine Award
- Best Company in Project Promoting Arts & Culture – Sustainability & Social Investment Awards (SSI)
- Best Company in COVID-19 Community Support project – Sustainability & Social Investment Awards (SSI)
- Best Company in Financial Literacy and Inclusion project – Sustainability & Social Investment Awards (SSI)
- Best Bank in Customer Satisfaction – Chartered Institute of Marketing Ghana (CIMG)
- 5 Star Bank in Service Quality – Chartered Institute Of Marketing Ghana (CIMG)
- Gold Award in Trade Finance – 18th Ashanti Financial Services Excellence Awards)
- Best Bank in Customer Service 2020 -Across Sectors, Ghana Customer Service Index (GCSI)
The bank has a footprint that spans three continents and all monetary zones in Sub-Saharan Africa, with a presence in Cameroon, Democratic Republic of the Congo, Ghana, Kenya, Nigeria, Rwanda, Gambia, Sierra Leone, South Africa, Zambia, Guinea, Mozambique and the United Kingdom. Access Bank (Ghana) Plc is listed on the Ghana Stock Exchange. This provides our investors and customers with unparalleled insight into the bank’s health.
At ACCESS, we offer a wide range of fixed income-focused products which include:
- Fixed or term deposits,
- Government of Ghana Treasury-bills and bonds,
- Corporate bonds,
- High-Interest Deposits Accounts
We also provide customised packages to meet the needs of investors with peculiar requirements. For any investor, irrespective of their level of sophistication or risk appetite, if you want ACCESS to Fixed Income investments as a gateway for financial development, speak to us.
>>>the writer is Head of Treasury-Access Bank Ghana Plc