Hi Everyone. Last week, we started a conversation on commercial papers and we defined what it is, how it works and how to plug into it. Today, we continue by looking at tax implications and other vital information. Shall we?
TAX IMPLICATIONS FOR INVESTORS
Investors in commercial paper benefit from receiving interest payments that are free from federal, state, and local taxes if the paper is tax-exempt. This tax advantage translates into higher after-tax returns compared to taxable investments with similar risk profiles.
EXAMPLES OF COMPANIES WHO ISSUE COMMERCIAL PAPERS
Large corporations with high credit ratings often issue commercial papers. Examples include:
- Dangote
- MTN Nigeria
- First Bank of Nigeria Limited
- Nigeria Breweries Plc
These companies use commercial paper to manage their short-term cash flow needs efficiently.
RECENT EXAMPLE:
1. Dangote Sugar Refinery Series 4&5 N42.79 billion Commercial Paper
2. Mecure Industries Plc Commercial Paper Series 12 N6.5 billion
3. Chrisland Schools Limited N2 billion series 4 (Tranche A&B) Commercial Paper
TIPS FOR EVALUATING NIGERIAN COMMERCIAL PAPERS:
1. Credit Rating: Check the credit rating of the issuing company. Higher-rated companies are less likely to default on their obligations.
2. Interest Rate: Compare the interest rate of the commercial paper with other short-term investments to ensure you're getting a competitive return.
3. Maturity Date: Consider the maturity date and how it aligns with your investment horizon and cash flow needs.
4. Issuer's Financial Health: Review the financial statements and recent news about the issuer to assess their financial stability.
5. Market Conditions: Be aware of the current market conditions, as they can affect the liquidity and pricing of commercial paper.
6. Diversification: If you're investing in multiple commercial papers, diversify your holdings to spread out risk.
In Conclusion, while commercial paper can be a good investment, it's important to conduct thorough research and consider seeking advice from a financial advisor. Happy investing!
TAX IMPLICATIONS FOR INVESTORS
Investors in commercial paper benefit from receiving interest payments that are free from federal, state, and local taxes if the paper is tax-exempt. This tax advantage translates into higher after-tax returns compared to taxable investments with similar risk profiles.
EXAMPLES OF COMPANIES WHO ISSUE COMMERCIAL PAPERS
Large corporations with high credit ratings often issue commercial papers. Examples include:
- Dangote
- MTN Nigeria
- First Bank of Nigeria Limited
- Nigeria Breweries Plc
These companies use commercial paper to manage their short-term cash flow needs efficiently.
RECENT EXAMPLE:
1. Dangote Sugar Refinery Series 4&5 N42.79 billion Commercial Paper
2. Mecure Industries Plc Commercial Paper Series 12 N6.5 billion
3. Chrisland Schools Limited N2 billion series 4 (Tranche A&B) Commercial Paper
TIPS FOR EVALUATING NIGERIAN COMMERCIAL PAPERS:
1. Credit Rating: Check the credit rating of the issuing company. Higher-rated companies are less likely to default on their obligations.
2. Interest Rate: Compare the interest rate of the commercial paper with other short-term investments to ensure you're getting a competitive return.
3. Maturity Date: Consider the maturity date and how it aligns with your investment horizon and cash flow needs.
4. Issuer's Financial Health: Review the financial statements and recent news about the issuer to assess their financial stability.
5. Market Conditions: Be aware of the current market conditions, as they can affect the liquidity and pricing of commercial paper.
6. Diversification: If you're investing in multiple commercial papers, diversify your holdings to spread out risk.
In Conclusion, while commercial paper can be a good investment, it's important to conduct thorough research and consider seeking advice from a financial advisor. Happy investing!