Treasury Bills in India Explained: Meaning, Maturity, Returns, and Investment Process

Key Highlights Treasury bills are short-term instruments that are issued by the RBI on behalf of the government. These are issued at a discounted rate and offer a high level of investor safety. These are available in three different maturity periods, which are 91-day, 182-day, and 364-day, to meet varied liquidity and investment needs.  You can invest through RBI Retail Direct, Demat accounts, or mutual funds. The returns will be taxed under your income tax slab, as per the STCG rules.

When it comes to low-risk, short-term investments, treasury bills in India are often among the first options investors consider. These instruments are backed by the government, which increases overall safety and helps maintain liquidity.

But when it comes to treasury bills in India, the confusion usually centers on tenure, maturity, and which is a better choice. This is where understanding the intricate details can greatly help you.

Addressing these basic questions will help you see which T-bills suit your investment plan. So, let's get all the details here.

What are Treasury Bills in India?

Treasury bills in India are short-term debt instruments. These are issued by the RBI on behalf of the Government of India. These are classified under the money market instruments with maturities of less than 1 year.

These are zero-coupon securities, which means they do not pay regular interest like the other debt instruments or fixed deposits. Instead, they are issued at a discount and redeemed at face value on maturity. They aim to meet the government's short-term funding needs.

These instruments are well-suited to a conservative investment strategy, which aims to manage risk while earning good returns.

Pros

• Highly safe, as these are backed by the government.

• Short-term funds with no default risk involved.

• Maturity value is well-known, which removes uncertainty.

• Supports good liquidity and flexibility.

• Used mainly for short-term investment of your idle funds.

Cons

• Lower returns than other instruments.

• Not a good choice for regular income or wealth building.

• Short maturity tenure increases reinvestment risks. 

• Low returns that cannot beat inflation.

Types of Treasury Bills in India

Treasury bills in India are classified based on their maturity period. Each of these serves a different purpose for the investors. 

Yield Calculation of Treasury Bills in India

T-bill returns are calculated based on the discount at which they are purchased. This means the yield comes from the difference between the purchase price and the face value received at maturity.

Formula:

Yield = {(Face Value ? Purchase Price) ÷ Purchase Price} × (365 ÷ Days to Maturity) × 100

It can be written as:

Yield = {(FV - PP) / PP} (365 / Days) 100

Example:

• Face Value = Rs. 100000

• Purchase Price = Rs. 98357

• Days to Maturity = 91

The formula is:

Yield = {(Face Value ? Purchase Price) ÷ Purchase Price} × (365 ÷ Days to Maturity) × 100

First, let’s check the gain on maturity:

Gain = Rs. 100000 - Rs. 98357 = Rs. 1643

Now, the formula for yield is applied as follows:

Yield = {(100000 - 98357) / 98357} (365 / 91) 100

Yield ? 6.7%

Result:

If a 91-day treasury bill with a face value of Rs. 100000 is purchased for about Rs. 98357 and redeemed at Rs. 100000 on maturity, the gain is Rs. 1643, yielding an annualized rate of around 6.7%.

How to Invest in Treasury Bills in India?

Investing in treasury bills in India is now quite simple, especially for retail investors. There are multiple routes available, so you can select one that suits your needs. Here are the main ways to invest:

1. RBI Retail Direct Scheme (Direct Method)

If you are looking to invest in the T-bills with no intermediaries, you would need to follow the steps as follows:

• Visit the RBI’s Retail Direct portal. 

• Open a Retail Direct Gilt Account.

• Complete the KYC needs and proceed with verification.

• Link the bank account that you wish to use for investing.

• Go to the primary auctions. The T-bills are issued at a discount.

• Enter the investment amount in the non-competitive bidding category. The investment is done.

2. Secondary Market (Through Demat Account)

Many investors prefer to buy the treasury bills from the secondary market. This is where you would need to use your demat and trading account as follows:

• Access government securities through your broker platform.

• Choose treasury bills.

• These will be available in the secondary market based on maturity.

• Place the order just like you do for the shares and stocks. 

3. Mutual Funds Route

Mutual funds, including T-bills, are a good choice for those who do not require active management, as expert fund managers manage these. The common choices are as follows:

• Liquid Funds: These invest in short-term instruments such as treasury bills and provide easy liquidity.

• Gilt Funds: These focus on government securities, including T-bills.

Tax on Treasury Bills in India

T-bills are held for less than one year and are treated as short-term capital gains (STCG) at the investor's applicable income tax slab rate. The details are as follows:

Conclusion

Treasury bills in India are a well-structured investment option for parking your surplus funds for a short period. These offer you a certainty of returns and help you manage the risk as well. But remember, these are not for building wealth in the long run.

This is where you would need to evaluate other funds to build a well-balanced portfolio. This is where using platforms like Rupeezy can be really helpful. You can get insights, tools, and data needed for analysis and research. This allows you to make informed decisions and meet your investment goals. 

FAQs

What are treasury bills in India?

Treasury bills in India are short-term government securities. These are issued at a discount and redeemed at face value.

How to buy treasury bills in India?

There are broadly three ways to invest in the treasury bills in India. You can invest directly on the RBI Retail Direct platform during the auction. You can buy from the secondary market through a demat account. Last is investing in the mutual funds that include T-bills as an asset.

What is the minimum investment in treasury bills?

The minimum investment is usually Rs. 25,000. After this, you can make additional investments in multiples of this amount.

Are treasury bills a safe investment?

Yes, they are backed by the Government of India, which makes them one of the safest investment options available.

How are returns on treasury bills calculated?

Returns come from the difference between the purchase price and face value, as these are issued at a discount and redeemed at full value.