What are Treasury Bills in India - Meaning, Status, Interest Rates, & How to Buy

T-bills, often known as Treasury Bills, are short-term financial instruments. It is a promissory note with a promise to pay later. The government typically uses the funds obtained to meet pressing needs. It is also used to reduce the total budget deficit of the country.

T-bills are offered for individual purchases at a discount from the total price. The investors can then profit from the disparity when they are redeemed for a minimum. T-bills are issued at zero-coupon rates, meaning no interest is accumulated.

As a result, it serves as an essential financial instrument for the Reserve Bank of India. It supports RBI's efforts to regulate and manage overall cash flow in the market. We have already understood what are treasury bills. It is time to understand its types, advantages, disadvantages, the process of purchasing treasury bills, and much more. Let's take a look at all these in detail.

Types Of Treasury Bills 

Treasury bills come in four different varieties. The holding time of these treasury bills serves as their primary distinguishing feature.

Treasury bill for 14 days

These bills reach maturity 14 days after the date of issuance. The payment is made the following Friday after the Wednesday auction. Every week there is an auction. The minimum investment amount for these bills is similarly Rs. 1 lakh, and they are offered in multiples of that amount.

1-year Treasury bill

These banknotes reach full maturity on the 91st day after the issuance date. They go up for auction each week. They are auctioned on Wednesday, and the money is paid the following Friday. The minimum deposit in such bills is similarly Rs. 25000, and they are offered in multiples of that amount. 

Treasury bills for 182 days

182 days after the date of issuance are needed for these bills to mature. The funds are paid after the Wednesday auction on the subsequent Friday when the period expires. They are put up for auction every other week. The minimum investment in these bills is similarly Rs. 25000, and they are offered in multiples of that amount.

Treasury bills for 364 days 

364 days after their issuance, these notes reach maturity. On the following Friday, when the term expires, the money is paid after the Wednesday auction. They are put up for auction every other week. The minimum investment in these bills is similarly Rs. 25000, sold in multiples of that amount. 

Each banknote has a continuous holding period, as was already established. However, Treasury bills' face value and discount rates are subject to cyclical adjustment. This depends on the RBI's monetary policy, funding needs, and the overall contributions received.

The Reserve Bank of India also publishes a calendar for auctioning Treasury Bills. Before each auction, the precise date, the amount to be auctioned, and the maturity dates are announced.

Advantages Of Treasury Bills

Zero Risk: It is considered to carry either very little or no risk. In all likelihood, you will have your money returned along with the guaranteed interest.

Easily Convertible: They flow quite easily (i.e., you can easily convert them to cash). You always have the option to choose to get your money at any point, even before the entire period has passed. However, this is not advised unless you are in extreme financial necessity. Please be aware that you will not receive the entire amount promised if you choose to sell your T'bills before the period has expired to get your money. The investment will be discounted, to put it another way.

No Transaction Fee: There is no transaction fee. Brokers don't charge you a fee for buying T'Bills for yourself, unlike other investment types, where the fee is assessed by the dealer who makes the transaction.

Disadvantages Of Treasury Bills

T-bills are zero-coupon instruments issued at a discount; thus, their returns are lower than those of other stock market assets. The yield on treasury bills is substantially lower than investments in the stock market, which are influenced by market conditions and other variables. Because of this, returns are steady over the tenure regardless of fluctuations in the business cycle and the economy's condition.

Treasury bill gains are subject to a short-term capital gains (STCG) tax, determined by the investor's income bracket.

How To Purchase Treasury Bills In India?

To purchase treasury bills in India, you would typically need to work through a bank or broker permitted to participate in the T-bill auction process. You would require a Demat account and trading account and a trading platform to hold the T-bills.

T-bills are available for purchase in the primary market, where the government gets money by selling investors T-bills. On behalf of the Indian government, the RBI manages the auction. The Reserve Bank of India's website hosts the government's press releases, which provide information about the T-bill auction.

The supply and demand of T-bills in the marketplace affect the pricing in the secondary market. 

Before investing in T-bills, it is advised to speak with a financial counselor because the interest rate and maturity date are liable to fluctuate and might not be appropriate for all investors.

Why Should You Purchase T-Bills?

In our nation, T-bills are one of the secure investment options. This instrument is perfect for investors with extra cash who wish to use it to good use and earn high returns. People who wish to preserve their fund holdings in government investment instruments should invest in T-bills to reduce the danger to their overall wealth. Additionally, portfolio diversity is encouraged by it.

What Influences The Price Of T-Bills?

The following factors influence the pricing and returns of T-bills:

Market Risk:

Market risk for other kinds of government securities is the outcome of the negative movement of the assets' prices as a consequence of changes in interest rates. Losses in value are the outcome. On the other hand, Treasury bills do not interest investors. They do provide assured returns from the sale of Treasury Bills.

Inflation

The returns you receive on Treasury Bills might be impacted by inflation. Your investing in government security may be useless, for instance, if the discount rate yields a return of 3% and the inflation rate is 5%.

Government Funding Requirements:

The government issues Treasury bills to raise funds to meet short-term needs. As a result, the funding requirements and RBI's financial policies impact T-bill pricing.

Bottom Line

To sum up, Treasury bills, called T-bills, are a reliable and secure investment choice in India. RBI issues these bills on behalf of the government. Due to their high liquidity and government guarantee, they are regarded as one of the lowest-risk investments and have a short-term maturity period that ranges from 91 to 364 days. Banks, financial institutions, and other investors frequently use T-bills to lodge their money in a quick, low-risk investment. The return to the investor is represented by the difference between the purchase cost and the current price of T-bills, which are issued at a discount to their nominal value. By serving as the central bank for the nation, they also play a significant role in regulating the nation's monetary policies.