Many people invest in Treasury notes or U.S. savings bonds to shore up the conservative portion of their investment portfolio. These bonds are backed by the U.S. government, so you know the investment is safe. As an alternative, you can invest in the Government National Mortgage Association, or GNMA, more typically referred to as "Ginnie Mae." GNMA securities also are backed by the U.S. government, but they carry a higher interest rate and are highly liquid.
The Government National Mortgage Association serves as an agency within the Department of Housing and Urban Development, typically referred to as HUD. GNMA buys home loans from financial institutions -- banks, credit unions and mortgage lenders -- and packages them as mortgage-backed securities. It then sells these securities to mortgage bankers and institutions which, in turn, sell them to smaller investors like you.
To invest directly in GNMA securities, you need at least $25,000, the minimum investment amount. After that, you can buy more securities for as little as $1. Ask your brokerage firm if it sells GNMA security issues. If so, you can buy them through your broker. If not, ask your banker or broker for a referral because nearly all national financial institutions sell them. In addition, you can buy resale GNMA securities from others in the secondary market. Sometimes you can get the resale at a lower price than $25,000 if the seller has had the GNMA securities for a while and the principal has been paid down. Also, the interest rate may be lower than the new issues, which also drives the price down.
If you don't have $25,000 sitting around to invest directly in Ginnie Mae issues, you can invest through a mutual fund for a lot less. You can buy shares in a Ginnie Mae mutual fund directly or through your brokerage firm. In addition, through your broker, you can buy shares in a real estate investment trust that buys GNMA bonds.
One of the benefits you get from investing in GNMA is that you receive either monthly interest and principal payments or monthly interest payments and periodic lump-sum mortgage payments. If you invest in GNMA initial or secondary offerings, you'll receive these through the financial institution from which you bought the securities. These institutions typically take a servicing fee, then pass the rest on to you and the other investors. If you invest in GNMA through REITs or mutual funds, you will receive dividends or capital gains through the fund.
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