What Are Treasury Bills or T-Bills in India?

Investing your hard-earned money is one of the best ways to make it work as hard as you do. But with the volatile market conditions, it can be challenging to identify safe investment options.

However, one investment tool you can consider is treasury bills or T-bills. These promissory notes are short-term tools that can help you grow your funds without worrying about the risk. If you’re wondering what these are and why you should consider them, look no further.

In this blog, we discuss treasury bills in detail, exploring their unique features, benefits, limitations and much more. 

What are treasury bills?

Government securities with a maturity period of one year or less are called treasury bills or T-bills. Treasury bills are money market instruments that are issued by the Indian government. These promissory notes are usually issued to meet the government’s short-term fund requirements. Hence T-bills play a key role in reducing the overall fiscal deficit of the country. 

With the T-bill interest rates being nil and these investment tools getting sold at discounted prices, individuals receive a higher face value of the bill at maturity.

For instance, let’s say the original value of a treasury bill is Rs. 100. It is available for you to purchase at Rs. 95. Once the maturity period ends, the government will repurchase it from you, paying the face value, which is Rs. 100. So, you would make a profit of Rs. 5.

Types of treasury bills

Each type of treasury bill has a specific duration. These can vary from 14 days to a year. Here’s a look at the different types of T-bills.

Features of treasury bills

Treasury bills have unique features that make them one of the top investment options available today.  Here’s a look at these.

#1. Minimum bid amount

RBI has set the minimum investment in T-bills at just Rs. 25,000. If investors wish to invest a larger sum, they can do so as well.

#2. Highly liquid

Treasury bills are easy to convert into cash. You can buy or sell them easily. Apart from the primary market, where T-bills are issued initially, investors can buy them in the secondary market as well, where they can be traded with other investors.

#3. Zero risk

Treasury bills offer a zero-risk investment opportunity. You can be sure that you will receive the expected returns on them. They are considered zero risk because the government guarantees their repayment, so there is no chance of default or losing money on this investment.

#4. T-bills rate of return

You can calculate your T-bills returns by using the formula below.

Y= (100-P)/P x 365/D x 100

Here, ‘Y’ refers to the percentage of return, ‘P’ refers to the price at which the T-bill was purchased, and ‘D’ refers to the tenure of the bill.

Benefits of investing in T-bills

T-bills are an excellent investment opportunity. Here’s why.

#1. Risk-free investment option

T-bills are issued by the RBI on behalf of the Indian government. Hence these investment tools are backed by the government, making them a zero-risk investment option. As compared to other alternatives, such as the stock market, these promissory notes come with the full security of returns.

And so if investors are looking for a low-risk, secure and convenient investment avenue, T-bills can prove to be the best option for them.

#2. Offer high liquidity

In today’s volatile world, liquidity is one of the most important considerations when deciding on investments.  And this is another reason why T-bills are a good investment option.

Instead of locking away your hard-earned money for years together, you can invest them in short-term investment tools such as T-bills that bring you returns within a year.

Further, if you wish to liquidate your T-bills before the maturity date, you have the option to sell them on the secondary market and convert them into liquid cash easily.

#3. Non-competitive bidding

RBI auctions treasury bills weekly through a system of non-competitive bidding. This allows amateur and small-scale investors to participate in bids without competing with seasoned large-scale investors.  It allows them to gain more experience in the field of investments without risking too much at once.

Limitations of investing in T-bills

While T-bills are a great investment opportunity, there are some points investors must keep in mind as well. Here’s a look at some of the shortcomings of investing in T-bills.

#1. Offers low returns

T-bills are one of the safest investment options available, however, this also means they offer low returns as compared to its alternatives. Further, since the returns are immune to market fluctuations, investors don’t benefit if the market performs well. They receive the pre-determined amount at the end of the maturity period.

#2. Returns are taxable

The returns earned on a T-bill are taxable under the Short-Term Capital Gain tax (STCG). The tax slab of the investor determines the tax rate.

Who should invest in treasury bills?

Here are some scenarios where investing in T-bills can prove to be the best option.

#1. You are looking for low-risk investments and desire assured returns

Being backed by the Indian government, these investment instruments are low-risk and known for their stability and security.

#2. You have short-term investment goals

Treasury bills are a viable alternative to investment options such as fixed deposits, stocks and the like. While fixed deposits often come with a lock-in period and may offer lower returns, treasury bills provide greater flexibility and potentially higher yields in a relatively short time frame.

Secure and low-risk investment with T-bills

Treasury bills or T-bills offer a secure, low-risk investment option with assured returns. They serve as an alternative to fixed deposits or liquid funds, providing simplicity, flexibility, and the backing of the Indian government. You can choose T-bills against the alternatives available if you are looking for a low-risk investment. 

Choosing the right investment option is important. But so is selecting the right financial partner for your investment journey. Tata Capital can be the one for you. With expertise and commitment to customer satisfaction, Tata Capital offers all the necessary support to make informed investment decisions. So, get in touch with Tata Capital and start investing today!