Treasury Bill

Introduction

Treasury Bills are bonds or debt instruments with a one-year maturity. Treasury bills are produced to cover short-term receipts and expenditures discrepancies. Dated securities are bonds with a longer maturity. The Indian government requires funds to fulfil its obligations. They engage the general population and use different financial methods to raise funds. Treasury bills are money market securities that the government uses to meet short-term cash needs.

Types of Treasury Bills

Treasury bills are offered in four different types. The holding time of these treasury bills is the most important distinction.

Treasury bill with a maturity of 14 days

The maturity of these bills is 14 days from the date of issuing. On Wednesday, they are auctioned, and payment is made the following week’s Friday. Every week, there is an auction. These bills are offered in multiples of Rs.1 lakh, with a minimum investment of Rs.1 lakh.

Treasury bill with a maturity of 91 days

These bills have a 91-day maturity from the day of issue. They are auctioned on Wednesday, and payment is made on Friday of the following week. They are auctioned off once a week. With a minimum investment of Rs. 25,000, these bills are issued in multiples of Rs. 25,000.

Treasury bills with a maturity of 180 days

Maturing in 182 days from the date of issue, these bills are given on Wednesdays, and bills are due by the end of the term on Friday. They are given off every other week. With at least Rs. 25,000 investment, these bills are issued in multiples of Rs. 25,000.

Treasury bills with a maturity of 364 days

The maturity of these bills is 364 days from the date of issue. They’re auctioned on Wednesday, and payment is due the following Friday when the term ends. They are auctioned off every other week. These bills are offered in multiples of Rs.25,000, with at least Rs. 25,000 as a deposit.

As previously stated, each bill’s holding time remains unchanged. The face value and discount rates of Treasury bills, on the other hand, may change over time. The RBI’s cash needs and monetary policy, as well as the aggregate number of bids received, determine this.

The Reserve Bank of India also releases a treasury bill auction calendar. Before each auction, it discloses the precise date of the auction, the value to be auctioned, and the maturity dates.

Salient Features of Treasury Bills

Form

T-bills or treasury bills are issued in either solid sense as a promissory note or in dematerialised form by crediting to the SGL Account (Subsidiary General Ledger).

Eligibility

Individuals, businesses, trusts, banks, insurance firms, provident funds, state governments, and financial institutions are all able to buy Treasury Bills.

Minimum bid

The minimum bid amount is Rs. 25000 and multiples of that amount.

Issue price

Treasury bills or T-bills are sold at a discount yet are repaid at face value. 

Repayment

The bill is paid in full at the end of the term’s maturity.

Availability

Treasury bills are liquid negotiable instruments available in both primary and secondary financial markets.

Method

For 91-day T-bills, a uniform price auction method is used, while for 364-day T-bills, a multiple price auction method is used.

Treasury bills have a year-long day count of 364 days.

Advantages of Treasury Bills

Treasury bills investments give investors several benefits, including safety and security. Some of the advantages are as follows:

Risk-free

Treasury bills are a popular way to invest in the government for a short period of time. The government has backed them up. They are a financial burden to the Indian government because they must be paid within a particular amount of time.

Extremely liquid

A Treasury bill’s longest maturity period is 364 days. They help to raise revenue for the economy’s immediate needs. This account may be used by individuals looking for short-term investments. On the secondary market, they can also be bought and sold. In a crisis, this permits shareholders to convert their interests into cash.

Bidding

The RBI auctions off Treasury bills once a week. This helps investors to make non-competitive bids.

Disadvantages of Treasury Bills

•     Treasury bills produce lower returns than other stock market investing options because they are government-backed debt securities.
•     Treasury bills are zero-coupon bills, so they don’t pay investors any interest. They’re given away at a discount and then redeemed at full price. As a result, regardless of the country’s economic status, T-bill investors receive fixed returns throughout the bond.
•     Stock market changes affect the returns produced by equities, equity funds, debt funds, and debt instruments. As a result, the yield earned by equity, equity funds, debt funds, or debt instruments rises in tandem with the stock market. On the other hand, T-bills provide consistent returns regardless of market movements.

Conclusion

Treasury bills are financial market controlled access by the Indian government in the form of a promissory note with a guaranteed payback date. Funds raised using such instruments are often utilised to cover the government’s short-term needs, hence lowering the country’s overall fiscal imbalance. The issuing corporation creates these instruments with the explicit intention of obtaining capital to fund business operations and expansion.