Treasury Bills: Are they a safe investing option? Things to know before you invest

To meet its shortfall of income, the Government of India borrows money from the public every year. These loans are known as bonds for a period that ranges between 91 days to 40 years.

These bonds are auctioned off by the Reserve Bank of India. The long duration bonds are referred to as G-Secs while the short duration ones are T-bills.

So, the government bonds for tenor of up to one year are called treasury bills. Earlier, retail investors were not permitted to buy T-bills and only institutional investors such as banks, insurance companies, pension funds had access to these.

The government, however, last year opened the doors to retail investors by allowing to bid in RBI auctions directly. So, T-bills can offer a viable alternative to safe fixed income instruments.

“T-bills are part of debt portfolio and the market movements do not impact them. They are fixed-maturity papers and the investors who want to remain invested till their maturity can avoid mark-to-market losses. In other words, there is barely any short-term impact of interest rate changes on these funds,” said S Sridharan, founder and principal officer, Wealth Ladder Direct.

What are T-bills?

Treasury bills or T-bills are money market instruments which are short term debt instruments issued by the Government of India and are presently issued in three tenors, namely, 91 days, 182 day and 364 day.

Treasury bills are zero coupon securities and do not offer any interest. Instead, they are issued at a discount and redeemed at the face value at maturity.

For instance, a 91-day Treasury bill of Rs 100 may be issued at a discount of Rs 2.80, i.e., at Rs 97.20 and would be redeemed at the face value of Rs 100.

In other words, return to the investors is the difference between the maturity value or the face value (that is Rs 100) and the issue price.

How to invest in them?

To be able to buy T-bills in auctions, one must open a Retail Direct Gilt (RDG) account with the Reserve Bank. Then one needs to link the RDG account to the bank account and must pay the bid amount upfront. So, allotment for retail investors is assured unless the issue is withdrawn or cancelled.

Investor usually receives email notifications of upcoming auctions once they open an account.

T-bills auction usually starts on Fridays and concludes on Wednesday of the following week.

When investor places their bid, the platform gives information about the T-bill’s tenure (91 days, 182 day or 364 day), the date of maturity, the issue size and start and end dates of bid.

The platform also shares an indicative yield which is based on the prevailing market prices. However, institutions can indulge in competitive bidding in the auction which may set a price that is different than what the RBI initially expected. So, investors are allotted securities based on this final cut-off yield and any excess amount paid is refunded.

Retail investors can invest in T-bills in multiples of Rs 10,000 up to a maximum of Rs 2 crore. 

Note: This story is for informational purposes only. Please speak to a SEBI-registered investment advisor before making any investment related decision.