Introduction

Treasury Bills (T-Bills) are short-term debt instruments issued by the Reserve Bank of India (RBI) on behalf of the Government of India. They serve as a crucial tool for managing the government’s short-term borrowing requirements while providing investors with a safe, liquid, and fixed-income investment option.

T-Bills are considered one of the safest investment instruments in India as they are backed by the government. Unlike bonds, they are issued at a discounted price and do not carry an interest rate (coupon). Instead, the difference between the issue price and the face value is the investor’s return (yield). These bills are popular among banks, financial institutions, mutual funds, and individual investors seeking secure, short-term investment avenues.

In this article, we will explore the meaning, types, benefits, and investment process of Treasury Bills in India.

What Are Treasury Bills?

Treasury Bills (T-Bills) are zero-coupon money market instruments that are issued by the Government of India for short-term borrowing. They are sold at a discounted price and redeemed at their full face value upon maturity.

For example, if a 91-day T-Bill has a face value of ₹100, it may be issued at ₹98, and the investor will receive ₹100 upon maturity. The ₹2 difference is the investor’s earnings or yield.

Key Features of Treasury Bills in India:

• Issued by the Government of India and regulated by RBI.
• Short-term investment options with maturities of 91 days, 182 days, and 364 days.
• Issued at a discount and redeemed at full face value.
• Highly liquid and risk-free investment.
• No periodic interest payments (zero-coupon instrument).
• Used by the government to manage short-term liquidity requirements.

Types of Treasury Bills in India

The RBI issues three main types of Treasury Bills, based on their maturity period:

1. 91-Day Treasury Bills

• Maturity Period: 91 days (approximately 3 months).
• Purpose: Used to meet the government’s short-term financing needs.
• Ideal for: Investors seeking ultra-short-term investment with quick liquidity.

2. 182-Day Treasury Bills

• Maturity Period: 182 days (approximately 6 months).
• Purpose: Helps the government raise medium-term funds while maintaining liquidity.
• Ideal for: Investors looking for a balance between short-term investment and decent returns.

3. 364-Day Treasury Bills

• Maturity Period: 364 days (approximately 1 year).
• Purpose: Used for longer short-term borrowing requirements of the government.
• Ideal for: Investors who prefer a risk-free, one-year fixed-income investment.

Note: In the past, RBI also issued 14-day Treasury Bills, but they are no longer in use.

How Do Treasury Bills Work?

The process of buying and redeeming T-Bills is straightforward:

Issuance at a Discount:

• The RBI auctions T-Bills every week through competitive bidding in the primary market.
• Investors buy T-Bills at a discounted price rather than paying the full face value.

Holding Period:

• Investors hold the T-Bill until maturity (91, 182, or 364 days).
• They do not receive interest payments during this period.

Maturity & Redemption:

• At maturity, the investor receives the full face value (e.g., ₹100).
• The difference between the purchase price and face value is the return (yield).

Example: If an investor buys a 364-day T-Bill with a face value of ₹1,000 for ₹950, they will receive ₹1,000 at maturity. The ₹50 profit represents their earnings from the investment.

Benefits of Investing in Treasury Bills

1. Risk-Free Investment

• T-Bills are fully backed by the Government of India, making them one of the safest investment options available. Unlike corporate bonds or fixed deposits, they carry zero default risk.

2. High Liquidity

• Since Treasury Bills are actively traded in the secondary market, investors can sell them before maturity if they need funds urgently. This makes them a highly liquid investment.

3. Fixed Returns with No Market Risk

• Unlike stocks or mutual funds, T-Bills offer predictable returns since they are issued at a discount and redeemed at face value. There is no exposure to market fluctuations, making them a stable investment choice.

4. Ideal for Short-Term Investors

T-Bills are a great choice for investors who:

• Need a low-risk, short-term investment.
• Want to park surplus cash for a few months.
• Are looking for alternatives to fixed deposits and savings accounts.

5. No TDS Deduction

• Unlike bank Fixed Deposits (FDs), where interest is subject to Tax Deducted at Source (TDS), Treasury Bills do not attract TDS deductions, making them a tax-efficient option for investors.

How to Invest in Treasury Bills in India?

Investing in T-Bills is easy and can be done through various platforms:

1. Reserve Bank of India (RBI) Auctions

• T-Bills are sold via weekly auctions conducted by RBI.
• Investors can participate through their banks or stockbrokers.

2. RBI Retail Direct Platform

• Retail investors can directly buy T-Bills via the RBI Retail Direct Portal, launched in 2021.
• The platform allows individuals to invest in government securities (G-Secs) and T-Bills easily.

3. Stock Exchanges (NSE/BSE)

• Investors can buy and sell T-Bills in the secondary market via NSE/BSE.
• Trading is facilitated through brokers and financial institutions.

4. Mutual Funds and Debt Funds

• Investors can gain exposure to Treasury Bills through liquid funds, money market funds, and gilt funds offered by mutual fund companies.

Taxation on Treasury Bills

While Treasury Bills do not attract TDS deductions, they are subject to capital gains tax:

• Short-Term Capital Gains (STCG): If the T-Bill is held for less than 1 year, the profit is taxed as per the investor’s income tax slab.
• Long-Term Capital Gains (LTCG): Since T-Bills mature within a year, LTCG does not apply.

Tip: Investors should consult a tax advisor to understand the impact of Treasury Bills on their tax liabilities.

Conclusion

Treasury Bills are an excellent short-term investment option for those seeking low-risk, high-liquidity instruments backed by the Government of India. Their zero-coupon structure, predictable returns, and ease of trading make them a preferred choice for individual and institutional investors alike.

As India’s economy grows, the role of government securities and money market instruments like T-Bills will continue to expand, providing investors with secure and efficient investment opportunities. Whether you’re a first-time investor or a seasoned market participant, Treasury Bills offer a safe and stable way to park surplus funds while earning predictable returns. 

Reference used: https://www.rbi.org.in/commonman/english/scripts/FAQs.aspx?Id=711

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