Treasury bills explained: Key features, benefits and risks of short-term government securities

Treasury bills are also known as T-bills. They are short-term government securities issued by the Reserve Bank of India (RBI). They are issued on behalf of the Government of India.

Furthermore, these bills are issued at a discount and redeemed at face value upon maturity. As they are backed by the Government of India, this makes them the safest and most liquid investment option in the country’s money market.

What are the key features of Treasury bills?

• Zero-coupon instruments: T-bills do not pay any interest, still they are issued at a discount and redeemed at full value.
• Short tenure: These bills are primarily available in short tenures, such as for 14, 91, 182, and 364 days.
• Low risk and hassle-free nature: Completely backed by the government, this makes them almost risk-free and hassle-free investment options.
• High liquidity: These bills can be sold in the secondary market even before maturity, as they are highly liquid and provide investors with absolute peace of mind.

What are the different types of Treasury bills?

There are several different kinds of Treasury bills according ot their tenures:

1. 14-day T-bill
2. 91-day T-bill
3. 182-day T-bill
4. 364-day T-bill

Every type has a predetermined or fixed tenure. Still, the issue price can vary based on liquidity, demand and the RBI’s monetary policy. For complete details on the currently available bills for subscription, refer to the official RBI website.

Minimum investment and yield

The minimum permissible investment in a Treasury bill is ₹10,000. Further, any higher amount must be in multiples of ₹10,000. The yield or return in this case is simply the difference between the purchase price and the face value expressed annually.

For example, if you invest in a 182-day T-bill with a face value of ₹10,000 at a discount price of ₹9,520, then on maturity, you will receive the full ₹10,000. This corresponds to a 10.1% annualised return.

How can you buy Treasury bills?

1. You can open an RBI Retail Direct (RDG) account and participate in auctions.
2. You can also invest in these assets through NSE or BSE using a demat account with a reputable broker.

Who can invest in these treasury bills?

• Individuals (including NRIs).
• Corporates and firms.
• Banks, mutual funds, and insurance companies.
• State governments and eligible provident funds.

Taxation

The gains from T-bills are treated as Short-Term Capital Gains (STCG) and taxed as per the investor’s income tax slab. There is no TDS deducted on redemption. They are taxed as short-term because they are short-term investment options by their fundamental nature.

What are the pros and cons of investing in Treasury bills?

Advantages:

• They are completely risk-free and government-backed.
• Highly liquid, reputable investment options are easily tradable.
• Transparent price discovery enables investors to achieve reasonable returns.
  

Disadvantages:

• Lower returns than corporate bonds or bank fixed deposits.
• Income generated is taxable in nature.
• Minimum investment of ₹10,000 may deter small investors.

Treasury bills are a safe and sound short-term government-backed investment option. It can be a prudent investment option for those aspiring to park their funds with minimal risk. They combine liquidity, predictability, and safety, and provide conservative investors with a platform to invest their funds with absolute peace of mind.

Disclaimer: The facts and figures discussed above about Treasury Bills are for educational and illustrative purposes only. Investors should refer to the official Reserve Bank of India (RBI) website and other authorised financial sources for the latest details, terms, and conditions before making any investment decisions. Market conditions and regulations are subject to change, which can impact investment outcomes. It is strongly recommended to consult qualified financial advisors to assess your individual financial situation and receive personalised guidance before investing.