What are Treasury Bills ?

Innocent Investor
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Treasury Bills (T-bills) are short-term Government Securities issued by the Reserve Bank of India (RBI) on behalf of the Government of India. These T-bills are issued in three main maturity periods: 91 days, 182 days, and 364 days. Investors purchase T-bills at a discounted price and receive the full face value upon maturity, making them a safe and attractive investment option due to their government backing. They serve as crucial tools for the government's short-term financing needs and cash flow management, while also providing investors with a low-risk avenue to preserve capital and earn returns. The auction process conducted by the RBI allows eligible participants, including banks, financial institutions, and individuals, to bid for T-bills. The yields on T-bills serve as benchmarks for short-term interest rates in India and are closely monitored by investors, policymakers, and the RBI. T-bills contribute significantly to the efficient functioning of the money market, providing liquidity and stability while supporting the implementation of monetary policy measures by the central bank. The Reserve Bank of India (RBI) acts as the issuer of T-bills on behalf of the Government of India. T-bills are issued through regular auctions conducted by the RBI, where eligible participants, including banks, financial institutions, primary dealers, and certain individuals, can bid for these securities. The auctions are typically held on a weekly basis. T-bills in India are issued in three main tenors: 91 days, 182 days, and 364 days. These tenors represent the period until maturity, after which the T-bills are redeemed at their face value. Investors can choose the maturity period based on their investment horizon and liquidity preferences. Discounted Issuance T-bills are issued at a discount to their face value, meaning investors purchase them for less than their eventual redemption value. For example, if a 91-day T-bill with a face value of ₹100 is issued at a discount price of ₹98, the investor pays ₹98 upfront and receives ₹100 at maturity, effectively earning ₹2 as interest. Safety and Risk T-bills issued by the Government of India are considered one of the safest investment options available in the market. They carry virtually no credit risk because they are backed by the full faith and credit of the Indian government. This makes T-bills an attractive investment choice for investors seeking capital preservation and low-risk returns. T-bills are highly liquid instruments, meaning investors can easily buy and sell them in the secondary market before their maturity dates. The secondary market for T-bills allows investors to adjust their investment portfolios, manage liquidity needs, and capitalize on changes in interest rates. The yields on T-bills serve as important benchmarks for short-term interest rates in India. The RBI closely monitors T-bill yields as part of its monetary policy framework to assess liquidity conditions, implement interest rate adjustments, and influence overall economic activity. Investor Base T-bills attract a diverse investor base, including banks, mutual funds, insurance companies, pension funds, corporates, and individual investors. Their safety, liquidity, and short-term nature make them popular among institutional and retail investors alike. Overall, T-bills play a vital role in India's financial system, offering a safe haven for investors and serving as an essential instrument for the government's borrowing program and liquidity management. Their simplicity, safety, and liquidity make them an integral part of the investment landscape in India, attracting a diverse range of investors seeking secure short-term returns.