To raise funds to meet their financial obligations, the Central government issues a variety of financial instruments. These instruments can be purchased by the general public, including debt securities, bond, and money market instruments. A treasury bills is a money-market instrument that the government uses to raise short-term funds.
Treasury bills are promissory notes that guarantee repayment at a later date. These T bills can be used to help reduce the nation's fiscal deficit because they are promissory notes. Treasury bills holders do not earn interest because these financial instruments have zero-coupon rates. These money market instruments are sold at a discount compared to their nominal value. Treasury bills are able to be redeemed at the nominal value upon maturity. These bills are able to be redeemed at their nominal value, allowing the holders to make a profit on the initial investment.
Treasury bills are short-term financial instruments that are used to meet government obligations. It is intended to reduce the fiscal deficit and control currency circulation. The Reserve Bank of India (RBI), as part of its open market operations, issues T bills. Here are the reasons:
Inflation rates that are high during economic booms, such as when there is high inflation, treasury bills can be issued to reduce the money supply. This decreases demand rates, which in turn leads to high prices.
- The discount value and circulation of T bills can be decreased during a recession. Investors may choose to invest in stocks or other securities, which will increase productivity and raise the GDP.
You can buy T bills at a lower price than the nominal, then redeem them at the nominal rate to get the difference. Let's take a closer look at the operation of treasury bills.
Treasury bills, which are zero-coupon securities, do not earn interest on deposits. Capital gains are earned from the profits after redemption.
According to the RBI guidelines, Rs 25,000 is the minimum amount that can be invested in T bills. You can also invest in multiples Rs 25,000.
These bills can be issued in either the dematerialized form, which is credited to the holder’s subsidiary ledger account(SGL), or the physical form.
- The RBI auctions securities such as T bills every week on behalf of the Centre based on total stock exchange bids.
These bills can be offered to investors by Depository Participants, commercial banks and primary dealers, or even Open-ended Mutual Fund Schemes.
Transferring Treasury bills takes T+1 days.
T bills with a maturity period of 91 days are sold in the uniform auction method, while the 364-day bills are sold using the multiple auction method.
This formula calculates the annual yield percentage of a Treasury bill.
Y is the yield per cent
P is the price at which the bill will be discounted
D is the tenure of a bill.
The length of the tenure is what distinguishes T bills from other types. The holding period for all types of Treasury bills is the same. However, the discount rates as well as the face values can change depending on the monetary policies, bids received, and funding requirements.
The 14-day Treasury bills are auctioned every Wednesday. They mature 14 days after they were issued. These bills require a minimum investment of Rs 15,000, but those who want to invest more can purchase these T bills in multiples Rs 1 lakh. These treasury bills will be paid on Fridays.
After 91 days, one type of Treasury bills matures. These T bills are available in multiples of the exact same amount with a minimum investment of Rs.25,000. These bills can also be auctioned on Wednesday, and the payments are made on Friday.
The 182-day Treasury bills are auctioned every Wednesday with a minimum investment of Rs 25,000.
These bills mature 364 days after their issue date. Payments are made on Fridays when the term ends. These bills can also be sold in multiples Rs 25,000 with a minimum of Rs 25,000.
The Treasury bills are short-term financial instruments that can be paid by the Central government. They are therefore completely risk-free. The RBI issues T bills, which are a liability to Centre. They must be repaid at a specified date. These bills are extremely safe investments, and they are paid regardless of the economic state.
Auctions for Treasury bills are weekly and non-competitive. This allows retail and small-scale investors to take part in the bidding. During the auction, they do not need to quote the yield rate or price. The overall cash flow to the capital market is higher when smaller investors have access to the government securities market.
Treasury bills have a maximum maturity of 364 days. This makes it easier for investors to gain short-term gains when compared with other securities. Investors in an emergency need of cash can sell their Treasury bills on the security market to meet their liquidity requirements.
T bills have lower returns than other stock market investments because they are zero-coupon securities that are issued at a discount. The returns are stable regardless of economic conditions or changes in the business environment. Contrary to stock market investments that are affected by market conditions, the yield on treasury bills will be significantly lower.
Short-term capital gains tax applies to gains from treasury bills, in accordance with the income slab under which the investor is.
Treasury bills are a safe and secure investment that is suitable for investors who do not want to take risks. A T bill is an investment tool that diversifies investors' portfolio and lowers their risk.
Because bidding is non-competitive, more investors have access to capital markets. Investment in treasury bills can be made easier by the availability of par values and discount rates in advance.