Definition:
Treasury Bills (T-Bills) are short-term debt instruments issued by the government to meet its short-term borrowing requirements. These are issued at a discount to their face value (par) and redeemed at par on maturity. T-Bills do not pay periodic interest (coupon), and the return is the difference between the purchase price and the redemption value.
Key Features:
- Issued by the Government:
- In India, T-Bills are issued by the Reserve Bank of India (RBI) on behalf of the Government of India.
- They are among the safest investment instruments since they are backed by the government.
- Short-Term Maturity:
- T-Bills have maturities of 91 days, 182 days, and 364 days.
- They are ideal for short-term liquidity management.
- Zero-Coupon Bonds:
- T-Bills do not pay periodic interest. Instead, they are sold at a discount to their face value and redeemed at full face value at maturity.
- Highly Liquid:
- T-Bills are traded in the secondary market, offering high liquidity.
- Risk-Free:
Since they are backed by the government, they carry no credit risk. The only risk involved is interest rate risk if sold before maturity.
Example:
- Suppose a 91-day T-Bill has a face value of ₹1,000 and is issued at a price of ₹980.
- On maturity (91 days later), the government repays ₹1,000 to the investor.
- The return (yield) for the investor is ₹1,000 – ₹980 = ₹20.
How T-Bills are Used:
- By Investors:
- Individual and institutional investors use T-Bills for short-term investments.
- Banks and financial institutions buy T-Bills to manage their liquidity and fulfil statutory liquidity ratio (SLR) requirements.
- By the Government:
T-Bills are a tool for the government to raise funds to manage temporary mismatches in revenue and expenditure.
Advantages:
- Safety: Virtually risk-free as they are issued by the government.
- Liquidity: Easily tradable in the secondary market.
- Flexibility: Availability in different maturities allows flexibility in managing funds.
Disadvantages:
- Low Returns: Returns are generally lower compared to other investments like corporate bonds or equities.
- No Periodic Income: As zero-coupon instruments, they do not provide regular interest payments.
The minimum investment in Treasury Bills (T-Bills) in India is ₹10,000. Here’s a breakdown:
Key Details:
- Denomination:
- T-Bills are issued in multiples of ₹10,000.
- For example, you can invest ₹10,000, ₹20,000, ₹30,000, and so on.
- Who Can Invest:
- Individuals, corporations, banks, and financial institutions can invest in T-Bills.
- Where to Buy:
- T-Bills can be purchased through:
- RBI Retail Direct Scheme: A platform for retail investors to buy government securities directly from the RBI.
- Stock Exchanges: Through brokers on platforms like NSE and BSE.
- Primary Auctions: Participating directly in RBI auctions via a bank or financial intermediary.
- T-Bills can be purchased through:
- No Maximum Limit:
- While the minimum is ₹10,000, there is no maximum limit on investment in T-Bills.
How Investment Works:
T-Bills are issued at a discount to face value. For instance, if the face value is ₹10,000, you may buy it for ₹9,800. At maturity, you receive the full face value of ₹10,000, and the difference is your return
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