Have a short-term goal that you need to save up for? Like a vacation three months down the line or a big celebration next month? Many short-term investment options in India can help you take care of your near-term goals. Among these are treasury bills, which are backed by the government. Here is everything you need to know about them. Let’s start by taking a look at the treasury bills’ meaning.
What is a treasury bill?
A treasury bill is a money market instrument that the government of India issues. It is a kind of promissory note that the government issues, and it is classified as a debt instrument. This means that the amount you use to invest in a treasury bill, which is also known as a T-bill, is a kind of loan given to the government.
The government uses the funds for meeting short-term requirements. T-bills come with the guarantee that the amount would be repaid at a later date.
A closer look at how treasury bills work
The government has many short-term obligations to fulfill. For instance, it needs to focus on reducing the country’s fiscal deficit and regulating the total currency in circulation. For these objectives, the government needs short-term funds. So, the RBI issues T-bills on behalf of the government.
Treasury bills do not pay any interest to the holder. Instead, they are issued at a discount initially and redeemed at par. This means they are redeemed at their nominal value. So, T-bills offer a profit when they are redeemed. However, since they do not pay any interest, they carry zero-coupon rates.
Types of treasury bills
Depending on the tenure for which they are issued, treasury bills in India can be any one of four types. Here is a closer look at the types of T-bills.
14-day treasury bills:
These T-bills mature 14 days from the date of issue. They are auctioned every week on Wednesday and are issued in multiples of Rs. 1 lakh.
91-day treasury bills:
The maturity of these T-bills is 91 days. These securities are also auctioned every week, and they are issued in multiples of Rs. 25,000.
182-day treasury bills:
These T-bills mature 182 days after their issue date. They are auctioned every other week and are sold in multiples of Rs. 25,000.
364-day treasury bills:
364-day treasury bills mature 364 days after issue, and they are also auctioned every other week. The issue is made in multiples of Rs. 25,000.
If you are interested in investing in treasury bills, you can easily do so with your demat account. And in case you do not have an account yet, worry not because you can open an online demat account with Motilal Oswal in a matter of just a few minutes.