Treasury Bills
( T-Bills)
Treasury Bills
Treasury bills which are generally known as T-bills are the money market instruments categorized under short-term debt instruments. T-bills are issued by the government of India in the form of a promissory note with the repayment guarantee on the mentioned date. Funds collected through treasury bills are typically for the central government to meet the short-term needs such as building necessary infrastructure- hospitals, roads, highways, etc.
Active T-bills
T-bills funds contribute to the economy of the country by minimizing the overall fiscal deficit. Because they are short-term debt tools, the maximum maturity tenure is 364 days for zero interest (coupon) rates. Treasury bills are issued at a discount rate to the individual and can be redeemed at the face value during the time of maturity.
For an instance- 91 day T-bill with a face value of ₹100 can be issued to the individual at the discounted rate of ₹98.20. During the T-bill maturity, the individual will receive the complete face value of ₹100 thus the profit of ₹1.60 is gained.
Features & Advantages of T-Bills
Features:
- Minimal investment required - An investor should note that a minimum investment of Rs 25,000 is needed for treasury bills. Investments can be made only in multiples of Rs 25,000.
- Zero-coupon securities - T-bills provide no interest on the total investments. Treasury bill investor earns the capital gains instead. An individual can buy the bill at the discounted rate and earn the face value rate upon maturity.
Advantages:
- No risk involved - T-bills are issued by RBI and are supported by the Government of India. It is a short-term debt instrument; therefore the maturity period is less than a year and is very well secured; hence no risk is involved. Investment in Treasury bills assures the complete security of the funds. Even during the economic crisis, the Central government has to pay the complete funds to the T-Bill investor.
- Effortless liquidity - T-bills are issued to the investor as a short-term investment instrument with a maturity period of 364 days (highest for Treasury bills). During the time of crisis, T-bills as being the government security can be sold back to the secondary market which allows an investor to convert treasury bills funds into cash.
T-Bill Returns
Types of Treasury Bills:
Treasury bills are much liquid investments as investment can be done for shorter period. The types of T-Bills are available based on their maturity period:
- 91 days
- 91 days
- 182 days
- 364 days
The maturity period of the treasury bills mentioned above remains constant while the face value and discount rate vary during the regular intervals.
