News

Putting money in Govt paper

WESTERN BUREAU:

FROM TIME TO time, we may hear about 'investing in Government paper'. For those who may think that it is a matter of buying some newspapers that the Government has put out, or think that the paper is the banknotes that are used on a daily basis, think again.

Government paper is an investment opportunity that is offered by the Government, which any person who has the money can take up. It is considered absolutely safe as, in theory at least, and unless under the most extreme circumstances, the government of a country goes totally bankrupt.

And, even then, when the country becomes financially stable again ­ as it must ­ the persons who hold Government paper have the rights to their money as a matter of priority.

While the Government may issue paper for different reasons, from raising money for a specific project or to capture excess money in the country that is causing the prices of items to go up, as more and more people try to buy them, the person who buys the paper has only one purpose in buying the paper, called an instrument.

It is not patriotic, it is purely practical.

They want to make a profit. And a big one, at that.

Government paper normally carries a very high interest rate, higher than the top percentage that any financial institution can offer. It has to be this way, as the Government needs to attract money that would otherwise

be placed in the bank the simpler and easier way ­ and more accustomed, as well.

In fact, many banks invest the money that has been deposited with them in Government paper. And never forget, the money is very safe.

When somebody buys Government paper, they are giving the country a loan. This paper may come as what is called a Treasury Bill or a bond. Whatever the form, the terms vary, with some that are known as 'short-term' coming in as low as six months and the longer term ones being for much longer periods.

When considering buying Government paper, a person has to look seriously at the period of time they are putting the money away for. When the money is put in a Treasury Bill there is no turning back. So the person has to be very sure that they do not need to use this money for the entire period of time that the money is slated to be put away with the Government for.

There is no trotting down to the bank nearest you for a 'smalls' when things get a little bit tight.

Getting your money into Government paper is not as simple as opening a savings account, however, and one must always remember that large companies and financial institutions, as well as wealthy individuals, are usually very interested in putting their money into this safe, profitable instrument.

First come, first served.