When the Indian government needs monetary aid to fulfil different financial obligations, they turn to the general public for fundraising. Among the different monetary instruments that can help with raising funds, treasury bills are a reliable form of investment. Scroll through this article to learn about treasury bills in detail.
What are Treasury Bills (T-Bills)?
Treasury Bills (T-Bills) are money market instruments issued by the Government of India as a promissory note of guaranteed repayment in the future. The main objective of issuing a treasury note is to obtain funds to cater to the short-term requirements of the government.
Treasury Bills come with four different tenures of 14, 91, 182 and 364 days. A treasury bill allows some profit to the subscriber as it is redeemed at a nominal value and issued at a discounted rate.
Types of Treasury Bills
You will primarily come across four types of treasury bills with distinctive holding periods. But all treasury bills are auctioned on Wednesday, and the payment is made on the Friday after its term expires.
14-Day Treasury Bill
These types of treasury bills with a maturity period of 14 days are auctioned every week. They are available in multiples of Rs 1 lakh. Therefore, the minimum investment amount for a 14-day treasury bill is Rs 1 lakh.
91-Day Treasury Bill
These bills take 91 days from their date of issuance to maturity. Same as the 14-day treasury bills, the 91-day treasury bills are also auctioned every week. If you want to invest in a 91-day treasury bill, the minimum limit is Rs 25000 . After that, you can spend more on multiples of Rs 25000.
182-Day Treasury Bill
These types of maturity bills are auctioned every alternate week, and they mature after 182 days. Available in multiples of Rs 25000, the minimum investment amount for these treasury bills is also Rs 25000.
364-Day Treasury Bill
The 364-day treasury bills are also auctioned every alternate week and have a maturity period of 364 days. With a minimum investment limit of Rs 25000, 364-day treasury bills are available in multiples of Rs 25,000 .
Why Does the Government Issue Treasury Bills?
After understanding the treasury bills meaning, you need to understand why the government issues them. A short-term treasury bill helps the government to raise funds to meet financial obligations, exceeding its annual revenue generation. The issuance of a treasury bill aims to reduce an economy's total fiscal deficit. At the same time, it helps in regulating the currency circulation amount at any given moment.
Treasury bills are also issued as part of the open market operations strategy of the RBI. It helps in managing the inflation level as well as the spending or borrowing habits of individuals. The RBI issues high-value treasury bills to the public during a period of economic boom with high and persistent inflation rates. It successfully decreases rising demand rates to prevent higher prices that harm lower-income segments of society.
Alternatively, the RBI incorporates a contractionary OMO regime while there is economic slowdown and recession by reducing treasury bill circulation and discounted value of associated bonds. It disincentivizes individuals from channelling their resources into this sector. Therefore, it helps in increasing cash flows to stock markets, providing a rise in most companies' productivity.
A gain in productivity has a favourable impact on an economy's GDP and aggregate demand levels. Therefore, treasury bills are essential for regulating monetary supply in the economy alongside their fundraising potential.
Who Should Invest in Treasury Bills?
Treasury bills are appropriate for investors seeking a safe investment with fair returns. The RBI makes it easier for investors to place non-competitive bids. T-bill bidding allows investors to participate in the process by placing a bid.
The details of the discount value and par value are made public ahead of time. Therefore, the investment process remains completely transparent to investors. It also aids in the generation of wealth for individuals.
It is appropriate for all investors, regardless of their knowledge or risk tolerance. Furthermore, it might serve as a safe investment for those attempting to diversify their portfolio. Banks, firms, trusts, insurance companies, state governments, provident funds, and financial institutions can also invest in treasury bills.
Benefits of Treasury Bills
Now that you know what treasury bills are, you must find out about their different benefits:
Risk-Free
Like debt funds, treasury bills are extremely secure forms of investments. Since they are backed by the Government of India, you will receive your funds back within the stipulated period. Even if there's an economic crisis, the amount is paid back to the investors.
Bidding
RBI auctions treasury bills almost every week. It enables retail investors to come forward with non-competitive bids. As a result, investors gain greater exposure to the government bond market. Therefore, it helps generate higher cash flow for the capital market.
High Liquidity
Treasury bills have the highest maturity period of 364 days and can help satisfy the short-term requirements of an economy. Any investor looking for short-term investment avenues can spend their funds on treasury bills. Moreover, treasury bills can also be sold in the secondary market. As a result, investors can transform their treasury bill holdings into cash during any emergency.
Ending Note
Treasury bills are an extremely safe form of fixed-income investments with negligible default risk. Since the issuance date, maturity date, and amount are fixed, the yield is also predetermined. Treasury bills have a significant role to play in regulating the monetary flow in an economy.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
FAQ's
Treasury bills are a secure form of fixed-income investments in India. Therefore, the risk of default in the case of treasury bills is zero.
You will come across treasury bills with varying maturity periods in India. The lowest maturity period for treasury bills is 14 days. Meanwhile, the maximum maturity period for treasury bills in India is 364 days.
Treasury bills are better than a few other savings options because they can offer relatively higher interest rates. Moreover, treasury bills come with government backing, which means zero risk of default.
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