What are Treasury Bills (T-Bills) and Why are They Issued?

Treasury bills, otherwise known as T-bills, are financial documents that serve as a money-making instrument for the government. Indian residents can invest in t-bills at a discounted price. The treasury bills and bonds are among the safest investment options you can choose for yourself. The profit behind it is minimal, but since T-bills are Government securities, it has minimal risk involved. 

Let’s dive in to know more about t-bills and their role in the Indian economy.

What are Treasury Bills?

The government of India issues treasury bills to meet short-term financial requirements whenever there’s a fiscal deficit. T-bills act as a promissory note by the Government with guaranteed repayment to the investors at a later specified date. This money market instrument is issued to investors at a nominal or discounted price. Point to note: there is a maturity period for each treasury bill, which is 364 days.

After the maturity period is over, the government rolls out the bills by giving investors the face value of the bill. For example, suppose a treasury bill has a face value of Rs. 120.  It will be available for purchase at a discounted price of 118.40. After the maturity period is over, the government will purchase the t-bill at Rs. 120, making you a profit of Rs. 1.60. Note that the bills are available at discounted price without coupons (zero interest rate).

Why are Treasury Bills Issued?

Whenever there is a short-term cash deficiency or there’s a fiscal deficit,the Government could issue treasury bills to reduce the overall fiscal deficit. It is cheaper than borrowing from any other financial body, as the government does not have to pay interest and the amount it returns is also lower than the interest they otherwise would have had to pay. 

The Reserve Bank of India also issues treasury bills under open market operations (OMO) strategy for everyone to purchase. RBI does it to control inflation and regulate borrowing/spending habits of consumers. Whenever there’s high  inflation rates in the country due to economic boom, the government issues high-value treasury bills to curb excessive money supply.

Similarly, during the times of recession, the Government rolls out T-bills at a reduced circulation rate and at discounted rates to divert investors’ resources to this sector, thereby boosting cash flows to the stock market. 

Also Read: What Is Income Tax Return? How To File ITR Online?

What are the Types of Treasury Bills?

Treasury bills are determined by their maturity period. The maximum tenure of the treasury bills is below one year. Depending upon the maturity period, there are mainly three types of treasury bills as listed below: 

14 days Treasury Bills

• 91 days Treasury Bills
• 182 days Treasury Bills
• 364 days Treasury Bills

The tenure does not change for the Treasury Bills. The discounts and the Treasury Bills rates are subject to change over the years. 

However, if you want to diversify your investment portfolio, try Navi Mutual Fund. Download the Navi app, explore a host of low-cost index funds and start investing today!

Features of Treasury Bills

The Treasury Bills have multiple features attached to them; you can avail all those who purchase the Treasury Bills. Some of the features are listed as follows: 

1. Minimum Investment Requirement

Although The government issues the Treasury Bills at the nominal rate, there is still a requirement of the minimum investment you need to make if you are planning to invest in the Treasury Bills. RBI instructs all investors to invest a minimum of Rs. 25,000. If you wish to invest more than a minimal amount, you can invest in multiples of Rs. 25,000 only.  

2. Zero-Coupon Securities

Investors earn capital gains from their investment in the government Treasury Bills. This is because after selling the bill, total face value is paid to the investor rather than the discounted price at which it was sold. As a result, investors stand to gain cumulative profit over their investment. 

3. Trading

The RBI issues Treasury Bills and Bonds every Wednesday in the market. Investors can purchase directly from the government or authorized primary dealers. Depending upon the bids, you can also trade securities with Treasury Bills. After the redemption of the t-bill, the settlement procedure needs to be followed by T+1.

Benefits of Treasury Bills

The benefits of the treasury bills are given below: 

1. Risk-free

RBI issues T-bills on behalf of the government. Therefore, your total investment has a complete guarantee from the government. After the maturity period is over, you get returns as per stated on your Treasury Bills at the time of the purchase. 

2. Liquidity 

The government Treasury Bills have a maximum maturity period of 364 days. However, you can invest in bills as low as 14 days. The short term goals can easily be achieved through treasury bills. If you have purchased bills with a longer tenure, you can sell those G-sec in the secondary market in case of emergency and get profitable returns. 

• Non-competitive Bidding

The government of India and RBI determines the Treasury Bills rate. Even before the market opens, the rate is set and doesn’t change. The sales of the Treasury Bills also do not impact the price of the treasury bills. If you are an amateur investor, Treasury Bills are among the finest and safest money-making instruments you can choose. 

Limitation of Treasury Bills

The Government Treasury Bills, although safest, do not generate significant returns on the investment when you compare them with the other securities in the market. The returns that are generated over the Treasury Bills are also predetermined, so you do not get more returns if the market performs well. Irrespective of all the things, you get your returns. 

The Treasury Bills are also subject to taxation. They are considered the investors’ income and are taxed per the investors’ tax slab. The tax is not deducted at the source (TDS). Therefore, you pay taxes only if your annual income falls into the tax bracket.  

Also Read: 10 Best-Performing Corporate Bonds In India (2022 Update)

Difference Between Treasury Bills And Treasury Bonds

The distinction between Treasury bills and bonds is given below in the tabular format: 

Treasury Bill	Treasury Bonds
These are short-term money-making instruments	These are long-term money-making capital instruments
You purchase bills at a discounted price and get the face value upon maturity	The bonds are sold at the face value. You earn the interest on the amount invested
The price of the t-bills does not change very often	The price of the t-bonds changes depending upon the maturity period
The maximum maturity tenure is up to 1 year	The maximum maturity tenure is up to 10 years
The types are determined by the maturity period	The types are determined by the nature of the bond

Who Should Consider Investing in Treasury Bills?

The Treasury Bills are perfect for the following individuals: 

• If you have a low-risk appetite. 
• If you do not mind earning less profit. 
• If you have short-term investment goals and a surplus amount 

Final Word

Treasury bills are government-issued security. These securities come with zero interest. The profit you earn is based on the difference between the face value of the security and the discounted price of the security. T-bills have a lower maturity period than other investment options.  

FAQs on Treasury Bills

Before you go…

• Looking for instant 🚀 personal loans 24*7 anywhere, anytime? Get personal loans up to ₹20 lakh starting at 9.9% p.a. Install the Navi app now!!
• Or, maybe you’re looking to buy that house you’ve been eyeing 🏠 and you need a loan of up to ₹5 crore. Install the Navi app now and get instant in-principle approval right away! Interest rates starting at 7.89% p.a.
• How about an affordable health insurance policy👨‍⚕️ starting at a monthly premium of just ₹235? Install the Navi app now and get your policy in under 2 minutes.
• Instead, want to put your savings into action and kick-start your investment journey 💸 But don’t have time to do research. Invest now with Navi Nifty 50 Index Fund, sit back, and earn from the top 50 companies.

Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.

This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.