What are Treasury Bills or T-Bills? 

Blog | Investing

Did you know that the Government of India also needs loans?
Did you also know that you could lend money to the government and earn a guaranteed return on it?
In fact, lending to the government via a Treasury bill or T-bill or a government bond is one of the most secure investments you could make. Read on to understand what are T-bills, why the government issues them, why they make an attractive investment, and how you could invest in them.

What are T-bills?

T-bills or Treasury bills are like short-term loans you give to the Indian government. You could consider the T-Bill like an IOU that the Reserve Bank (on behalf of the government) gives you against which you lend money. Instead of paying you interest (like you would get for a regular loan), the RBI issues these T-bills to you at a lower price, and when they "mature" (which means they reach their due date), the government pays you back the full amount.  

For instance, say the RBI issues a T-bill with a face value of Rs. 100. You could purchase it at Rs. 95. But, you will receive Rs. 100 upon maturity. The difference of Rs. 5 becomes your return or yield on the T-bill. T-bills have a short maturity period, ranging from 14 days to 364 days.

The Reserve Bank of India (RBI) issues them on behalf of the government through auctions, with a pre-published calendar specifying auction dates, amounts, and maturities. There are four types of treasury bills in India:

  • 14-day treasury bill
  • 91-day treasury bill
  • 182-day treasury bill
  • 364-day treasury bill

The 91-day treasury bill is issued every week, while the other three are issued every fortnight. The minimum amount that can be invested in treasury bills is Rs. 25,000 and in multiples thereof.

Why does the government issue T-bills?

The government needs money to run the country, just like we need money for our expenses. Sometimes, the government needs a quick cash boost, and that's when they issue T-bills. The Reserve Bank of India (RBI) handles this for the government. It's like the RBI helps the government borrow money from regular people like you and me. It's a secure deal because the government promises to pay us back.

How do you earn a return on T-bills?

When you invest in T-bills, you are pretty much guaranteed to get your money back because the government stands behind it. It's like a safe investment! So, instead of giving you regular interest like a bank does, T-bills work in a clever way. You buy them at a lower price than their actual value, and when they come due, the government pays you the full value. That little extra money you get is your return.

How is a T-Bill different from a fixed deposit?

You might wonder, "Isn't this just like a Fixed Deposit?"
Well, in some ways, yes!
Both are fixed income instruments,  but there are some differences. With an FD, you get regular interest payments, but with T-bills, you get your money back with a profit only when they mature. T-bills are short term investments , like a few days to under a year, while FDs are usually preferred for longer periods, like a few months to a few years. 

And the most significant difference - a T-bill comes with a sovereign guarantee and carries almost zero default risk. Meanwhile, in case of an FD, if the bank goes under, only the principal and interest of up to 5 lakh per account holder is insured.  

How do you invest in T-bills?

There are two ways to invest in T-bills:

  1. Primary Market: You can participate in auctions (bidding) conducted by RBI through banks or dealers. You bid for the T-bills, specifying the amount and price, or you can accept the auction-determined price. 
  2. Secondary Market: After T-bills are issued by RBI, you can buy or sell them from other investors through banks, brokers, or online platforms.

How much tax do you pay? 

T-bills are quite tax-friendly. You won't have to pay any state or local taxes on the money you make from T-bills. However, the profit you earn from T-bills is considered "short term capital gains" and will be taxed based on your income tax slab.

Conclusion- Here’s why to invest in T-bills?

Investing in treasury bills offers numerous advantages:

  • Safety: They are very safe because the government rarely defaults..
  • Liquidity: T-bills are easy to sell or trade, making them handy in case you have a sudden money requirement. 
  • Flexibility: You can choose to stay invested for different time periods to match your needs.
  • Returns: T-bills can give you profits on your investments. The exact profit depends on factors like market demand, inflation, and government policies.


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