Treasury Bill (T-Bill) is the short-term debt securities or government loans with a maturity of less than a year available at zero coupons rate.
In other words, T-Bill is a money market instrument issued by the Government of India when the government needs money for the shorter term. They are issued at a discount to the published nominal value of Government Securities.
Banks give T- bills to the RBI to get money under repo. Similarly, they can keep it as part of the SLR (Statutory liquidity ratio).
Types of Treasury Bill
There are the following three types of auctioned T-bills:
1. 91 days T-bills: The duration of these T- bills complete on 91 days. These are auctioned on Wednesday, and the payment is made on the following Friday.
2. 182 days T-bills: This T- bills get matured after 182 days, from the day of issue, and the auction is on Wednesday of non-reporting week. Moreover, these are repayment on the following Friday, when the term expires.
3. 364 days T-bills: The maturity period of these types of T- bills is 364 days. The auction is on every Wednesday of reporting week and repayment on the following Friday after the term expires.
Features of Treasury Bills
- Minimum Investment: The minimum amount of investment is ₹ 25000 and Furthermore, any higher investment has to be made in multiples of ₹ 25,000.
- Form: Treasury bills are issued either in physical form as a promissory note or dematerialized form by a credit to Subsidiary General Ledger (SGL) Account.
- Eligibility to invest: Individuals, firms, companies, banks, provident funds, state government, and financial institutions or NBFC are eligible to invest in treasury bills.
- Issue price: Normally Treasury bills are issued at a discount, but redeemed at par.
- Availability of T-bills: T-bills are highly liquid negotiable instruments, that are available in both financial markets such as primary and secondary.
- Time Duration: The duration is 364 days, in a year, for treasury bills.
Advantages of T-Bills
1. Risk-free: T-bill is the short-term government schemes issued by the RBI and is backed by the central government. These types of tools act as a liability to the Indian government as they need to be repaid it within the specified date.
2. Liquidity: T-bill has the highest maturity period of 364 days. Individuals looking to generate short term gains via secure investments can choose to hold their funds in such securities. Also, these types of government securities can be resold in the secondary market, allowing individuals to convert their holding into cash during emergencies.
3. Non-competitive bidding: Through non-competitive bidding Treasury bills are auctioned by the Reserve Bank of India every week, that allowing retail and small-scale investors to participate in such bids without having to quote the yield rate. It increases the interested investors to the government securities market, thereby creating higher cash flows to the capital market.