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Treasury Bills in India Things You Need to Know Before You Invest

30 Jun 2023

Are you looking for a secure investment option in India? Treasury bills, also known as T-bills, could be the answer. Investing in T-bills offers a dependable way to grow your money. Whether you want to start building your portfolio or looking for options to diversify it, T-bills can be vital to your investment plan. 

Read this article to explore the meaning of Treasury bills and learn how to invest in them. 

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What is a Treasury Bill?

A Treasury bill is a short-term debt instrument issued by the government. It is considered one of the safest investment options because the government's creditworthiness backs it. 

T-bills are also called zero-coupon securities because they do not pay regular interest during their tenure. Instead, they are issued at a discount to their face value. The difference between the discounted purchase price and the face value represents the return you earn upon maturity.

What are the Types of Treasury Bills?

There are three types of T-bills based on their maturity periods. These T-bills offer different investment horizons to you, depending on your financial goals and preferences. Each type provides a short-term investment opportunity with varying durations. 

The table below provides detail of these types:

Type

Maturity Period

Auction Frequency

Average Returns

91-day T-bills

3 months

Every Wednesday

6.75%

182-day T-bills

6 months

Every Wednesday

6.91%

364-day T-bills

1 year

Every Wednesday

6.90%

Why Does the Government Issue Treasury Bills?

The government issues Treasury Bills (T-Bills) for a couple of important reasons:

  • T-bills help the government to raise money quickly. This money covers things like budget shortfalls or paying for other governmental operations.
  • T-Bills help the government control the amount of money floating in the economy. By selling T-Bills, the government removes the extra money circulating in the market, which reduces inflation.

What are the Features of Treasury Bills?

Here are some key features of Treasury bills:

1. Diverse Maturity Periods

T-bills offer a range of maturity periods. This allows you to choose the maturity period that aligns with your investment goals.

2. Government Backed

T-bills are issued by the Government of India, and hence, they are backed by the government’s guarantee. This ensures high safety and low risk associated with these instruments.

3. Regular Issuance

The government regularly auctions T-bills, ensuring you have a continuous supply of investment opportunities. This provides flexibility in terms of maturity and allows you to invest in T-bills as per your preferences.

How to Buy Treasury Bills in India?

Here are certain ways how you can buy T-bills in India:

1. Primary Auctions

You can participate in auctions conducted by the Reserve Bank of India (RBI). The bids are invited from eligible participants, such as banks and certain non-banking financial companies.

2. Secondary Markets

After the initial auction, T-Bills are listed and traded on the secondary market. In the secondary market, you can buy T-bills through a broker or by approaching a bank that deals in government securities.

3. Retail Direct Gilt (RDG) Account

You can open an RDG account with a registered intermediary, like a bank or a non-banking financial company. This will let you directly transact with government securities, including T-Bills.

Why Should You Invest in T-Bills?

Here are some reasons why you should invest in T-bills:

1. Liquidity

T-bills are highly liquid. They allow you to convert them into cash quickly. This makes them suitable for short-term investment needs.

2. Guaranteed Returns

Since the government's guarantee backs T-bills, there is minimal risk of default. At maturity, you will receive the full face value of the T-bill.

3. Portfolio Diversification

T-bills are valuable for diversifying your investment portfolio. They are low-risk assets that balance your overall risk profile. 

The Bottom Line

T-bills provide a secure and low-risk investment avenue for individuals and institutions in India. With their attractive features and ease of investment, T-bills can be valuable to your investment portfolio. Before investing in Treasury bills, you must consider your financial goals, risk tolerance, and investment horizon. Moreover, remember to consult with a financial advisor to make informed decisions.

 

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