Invest in GoP’s Pakistan Investment Bonds (PIBs)

The Pakistan Investment Bonds or commonly called as PIBs are medium to long term securities issued by State Bank of Pakistan (SBP) on behalf of the Government of Pakistan. Like Market Treasury Bills (MTBs), the PIBs are also issued in scripless form. However, these bonds are issued in multiples of Rs. 100,000.

PIBs are coupon-bearing debt securities quite the reverse of MTBs. In simple words, these bonds are issued at face value and are redeemed at face value. In consideration thereof, profit is paid to the investor every six months at a fixed rate. If not redeemed early, the profit rate or coupon rate on these bonds is paid until maturity. The PIBs offers a very good competitive return while keeping the investment secure. The repayment of face value and profit is guaranteed by the Government of Pakistan and therefore the chances of a default in the principal and profit payouts from these bonds are nearly zero.

Although PIBs are only redeemable at maturity. However, PIBs can be traded freely in the secondary market.

The tenor of these bonds are 3, 5, 10, 15 and 20 years.

Similar to MTBs, these bonds are also acceptable as collateral or security for lending. Further, Zakat is not deducted on these bonds while income tax is deducted on the profit amount according to the prevailing rate.

How to Investment in PIBs

In a similar manner to MTBs, investment in the PIBs can be made either through participation in the Primary market or through a deal in the secondary market. Below is the step by step procedure for investment in the PIBs, both in primary and secondary markets:

1. Open an IPS Account

Investor Portfolio Securities (IPS) account is also mandatory for investment in the PIBs. If you have already an IPS account well and good. But if you do not have an IPS account, you must approach a Primary Dealers (banks designated by SBP to deal in PIBs) to open IPS account. See the list of Primary Dealers here.

If you maintain a PKR denominated bank account already with the bank, you can easily request the bank for opening the IPS account. However, if you do not have a bank account, you will be required to open a bank account in the first place.

After opening a bank account, you will submit a duly filled IPS Account Opening Form along with the required documents to the concerned bank. Subsequently, the bank will open an IPS account if the documents are all in order.

Each bank charges some fee including management of IPS account, transactional fee etc. which is mentioned in their schedule of charges.

2. Purchasing PIBs

If you are done with the opening of the IPS account, you can proceed to the next step. There are two options to invest in PIBs. Firstly, from the Primary Market through non-competitive bidding process in regular auctions of SBP. While second option is the Secondary Market.

Through Primary Market

You cannot directly take part in the bidding process. Rather, you would be required to participate through the bank where you maintain IPS account.

You will submit an application form to the concerned bank for non-competitive bidding process. The bank will review the request according to the requirements of non-competitive bids. However, there a certain limits for non-competitive binding. The quantum of non-competitive bids shall be 0.25% of the auction target or Rs. 25 million, whichever is higher. However, the maximum limit for non-competitive bids is Rs. 500 million.

These bids are sent to SBP separately from the competitive bids before the commencement of auction time along with the details of investors. A single investor can submit only one bid for a single tenor PIBs. Submitting more than one bid for a single tenor may get rejected by SBP.

Yield on these bids is based on the weighted average yield of each tenor as decided in the primary auction.

Once the bids are accepted, the approved / accepted quantity of PIBs will be transferred to the IPS account maintained with the bank.

Your bank will hold these bonds in the IPS accounts on your behalf and you will be the actual and legal owner.

The SBP holds auctions of PIBs on a pre-announced schedule. 

Through Secondary Market

If you are unable to take part in the primary auction or your bid has been rejected, you can invest in the PIBs through the secondary market.

You will approach your primary dealer bank and submit an application form. The bank will arrange PIBs from the secondary market through a certified broker. This process is simple and instantaneous as compared to the non-competitive bidding process.

The investment amount will be debited directly from the bank account, and the bonds will reflect in your IPS account.

Procedure for Non-Resident PIBs Investors

Non-resident Pakistanis are also eligible to invest in PIBs. However, they will be required to open an additional bank account called Special Convertible Rupee Account (SCRA). This enables the investor to remit foreign currency through the bank and credit will be given to account after conversion of foreign currency into Pakistani Rupee.

However, the reaming procedure is similar to that of a local investor.

Profit Payment on PIBs

The profit on PIBs is paid in the form of Coupon payments. The coupon payments are paid at a fixed rate of the face value on a semi-annual basis. The amount of profit is credited to the account of the investor through the designated bank.

Current Profit / Yield Rates

The auction results cut-off yields / accepted amounts are decided by the Government of Pakistan on the same day.

The profit / coupon rate of PIBs is highly competitive. The profit rate of last auctions held on April 15, 2020 was 8.5315% per annum and 8.7085% per annum for 3 years and 5 years bonds respectively. Similarly, for 10 years bond the coupon rate was 8.9725% per annum while it was 10.4540% for 15 years bond. The 20 year bonds coupon rate was 10.7000% per annum.

if you are looking forward to invest in PIBs, the next auction is scheduled on May 27, 2020.

Learn about various risk free investment options by clicking here.