Treasury bill

 

·       Treasury bills, also known as T-bills, are short term money market instruments.

·       It is a promissory note with a guarantee of payment at a later date. The funds collected are usually used for short term requirements of the government. It is also used to reduce the overall fiscal deficit of the country.

·       Treasury bills or T-bills have zero-coupon rates, i.e. no interest is earned on them.

·       Individuals can purchase T-bills at a discount to the face value. Later, they are redeemed at a nominal value, thereby allowing the investors to earn the difference.


Types of Treasury Bills

·       Four types of treasury bills-

Ø  14-day Treasury bill - These bills complete their maturity on 14 days. They are auctioned on Wednesday. The auction occurs every week. These bills are sold in the multiples of Rs.1lakh and the minimum amount to invest is also Rs.1 lakh.

Ø  91-day Treasury bill - These bills complete their maturity on 91 days.  They are auctioned on Wednesday. They are auctioned every week. These bills are sold in the multiples of Rs.25000 and the minimum amount to invest is also Rs.25000.

Ø  182-day Treasury bill - These bills complete their maturity on 182 days.  They are auctioned on Wednesday. They are auctioned every alternate week. These bills are sold in the multiples of Rs.25000 and the minimum amount to invest is also Rs.25000.

Ø  364-day Treasury bill - These bills complete their maturity 364 days. They are auctioned on Wednesday. They are auctioned every alternate week. These bills are sold in the multiples of Rs.25000 and the minimum amount to invest is also Rs.25000.


Features of Treasury Bills

·       Treasury bills can be issued in a physical form as a promissory note or dematerialized form by crediting to SGL account (Subsidiary General Ledger Account).

·       Treasury bills are issued at a minimum price of Rs.25000 and in the same multiples thereof.

·       Treasury bills are issued at a discounted price. However, they are redeemed at par value at the time of maturity.

·       Individuals, companies, firms, banks, trust, insurance companies, provident fund, state government and financial institutions are eligible to purchase T-bills.  

·       Treasury bills are highly liquid negotiable instruments. They are available in both financial markets, i.e. primary and secondary market.

·       The 91 day T-bill follows a uniform auction method, whereas, 364 day T-bill follows a multiple auction method.

·       The yields are assured. Hence, they have zero risks of default.


Advantages of treasury bills

·       The Treasury bill is risk-free, the Central government backs them. They act as a liability to the Indian government as they need to be paid within a stipulated time. The amount has to be paid to the investors even during the crisis.

·       Treasury bill has a highest maturity period of 364 days. They help in raising money for short term requirements for the economy.

·       Individuals who are looking for short term investments can park their funds here.

·       T-bills can be sold in the secondary market. This allows investors to convert their holding into cash during any emergency.


Limitations of Treasury Bills

·       Compared to other stock market investment tools, treasury bills yield lower returns as they are government-backed debt securities.

·       Treasury bills are zero-coupon bonds, i.e. no interest is paid on them to investors.

·       They are issued at a discount and redeemed at face value. Therefore, the returns earned by investors in T-bills remains fixed throughout the bond tenure irrespective of the economic condition of the country.

 

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