All you need to know before investing in T-Bills

Blog | Investing

What are T-Bills?

T-Bills, or Treasury bills, are like "IOU" notes the Indian government issues to get money for its short-term needs. T-Bills are issued by the government through the RBI. Since it is like a loan, T-bills are issued for a fixed time period and your investment (the loan that you gave the government) is repaid on a predetermined date aka the date of maturity of the T-bill. You will however not earn any interest on the T-bill. Instead, the government offers these IOUs at a discount to their original price or face value. For example, if you bought a T-bill with a face value of ₹100, you could buy it at a discounted price of ₹98.40. Assuming that it matures in 91 days, the government will buy it back from you then at ₹100. The profit of ₹1.60 that you make is your return.

Why does the Government Issue T-Bills?

The government issues treasury bills to get quick money for their short-term needs, like funding projects and managing expenses. Instead of borrowing from banks, the government borrows from the public. The Reserve Bank of India (RBI) handles the entire transaction. The maturity period for T-bills is always under a year and varies from a minimum of 14 days to a maximum of 364 days. While T-bills are primarily issued to raise short-term funds for the government, the RBI also uses this instrument to manage the flow of money (liquidity) in the economy and control inflation. For instance, when there's too much liquidity, the RBI could issue high-value treasury bills. The money invested in these bills would suck out excess liquidity in the economy. Similarly, when the economy is short of money, the RBI increases supply by buying back T-bills..

Types of T-Bills

T-Bills are of four types, based on their maturity period:

  1. 14 days - Auctioned every Wednesday, with a minimum investment of ₹1 lakh.
  2. 91 days - Up for grabs every week, and you can start with ₹25,000 or more.
  3. 182 days - Available every alternate week, with a minimum investment of ₹25,000.
  4. 364 days - Also auctioned every alternate week, starting at ₹25,000.

Features of T-Bills

  1. Minimum Investment: The minimum investment requirement is ₹25,000. You can invest in multiples of 25,000. Only 14-day T-Bills require an investment of ₹1 lakh.
  2. Zero-Coupon (Interest) Securities: You do not earn an interest on a T-bill. However, you can make a profit from T-Bills, since you buy these at a discount and redeem it  at the full face value.
  3. Trading: You can buy T-Bills directly from the government or through authorised banks and dealers. You can also trade in T-bills in the secondary market like a stock. The redemption process follows a T+1 settlement cycle.
  4. Investment Yield: How much can you earn and how does it compare with other assets? Use this formula to  calculate the yield percentage of a T-Bill: 
Yield Percentage = (100-Discounted T-Bill Price) / Discounted T-Bill Price x 365 / T-Bill tenure x 100.

Benefits of T-Bills

  1. Liquidity: T-Bills are perfect for short-term goals, as their maximum maturity is just one year. You can even sell them in the secondary market in emergencies.
  2. Risk-Free: Backed by the government's creditworthiness, T-Bills come with a complete repayment guarantee.
  3. Fixed Returns: The government determines the fixed T-Bill rate, so there are no surprises. You know exactly how much you will make from your investment.
  4. Price Discovery: If you choose to trade in T-bills, the market sets the price of T-Bills based on economic conditions, interest rates, and demand-supply factors.

T-Bills Limitations

  1. Low Returns: Returns from T-Bills are theoretically lesser (but bear in mind, this varies with the interest rate cycle). However, the advantage with T-bills is its liquidity - you can sell in the open market if you choose to exit. Meanwhile, with a fixed deposit, you would have to pay a penalty if you choose to exit early. 
  2. Taxable Returns: The returns on T-Bills are subject to short-term capital gains tax (STCG), potentially diminishing your returns.
  3. Expensive: The minimum investment requirement could act as an entry barrier for some investors.

Who Should Consider Investing in T-Bills?

T-Bills are an excellent choice for you if you have:

  • Low-risk appetite
  • Short-term investment goals with surplus funds
  • An interest in alternatives to fixed deposits or liquid funds
  • A desire for assured returns

Tax on T-Bills

T-Bill returns are subject to STCG tax based on your tax slab rate. However, no TDS is required upon redemption.


In conclusion, Treasury Bills can be a prudent addition to your investment portfolio, especially if safety and liquidity are your primary concerns. Understanding the timeline and maturity days and weighing the pros and cons will help you make an informed decision.

Before investing, consider your financial goals, risk tolerance, and investment horizon. Remember, T-Bills are an excellent instrument to diversify your portfolio and to secure funds during emergencies.

If you're seeking a reliable, low-risk investment option while contributing to the nation's growth, T-Bills might be the right choice for you.


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