Definition: Treasury Bills, also known as T-bills are the short-term money market instrument, issued by the central bank on behalf of the government to curb temporary liquidity shortfalls. These do not yield any interest, but issued at a discount, at its redemption price, and repaid at par when it gets matured.
T-bills are the key segment of the financial market, which is utilised by the government to raise short-term funds, for fulfilling periodic discrepancies between its receipts and expenditure. The difference between the issue price and the redemption value indicates the interest on treasury bills, called as a discount.
These are the safest investment instrument of its category, as the risk of default is negligible. Further, the date of issue is predetermined, as well as the amount is also fixed.
Salient features of Treasury Bills
- Form: T-bills are issued either in physical form as a promissory note or dematerialised form by crediting to Subsidiary General Ledger (SGL) Account.
- Eligibility: Individuals, firms, companies, trust, banks, insurance companies, provident funds, state government and financial institutions are eligible to invest in treasury bills.
- Minimum Bid: The minimum amount of bid is Rs. 25000 and in multiples thereof.
- Issue price: T-bills are issued at a discount, but redeemed at par.
- Repayment: The repayment of the bill is made at par on the maturity of the term.
- Availability: Treasury bills are highly liquid negotiable instruments, that are available in both financial markets, i.e. primary and secondary.
- Method of the auction: Uniform price auction method for 91 days T-bills, whereas multiple price auction method for 364 days T-bill.
- Day count: The day count is 364 days, in a year, for treasury bills.
Besides this, other characteristics of treasury bills include market-driven discount rate, selling through auction, issued to meet short-term mismatches in cash flows, assured yield, low transaction cost, etc.
Types of Treasury Bills
At present there are three types of auctioned T-bills, which are:
- 91 days T-bills: The tenor of these bills complete on 91 days. These are auctioned on Wednesday, and the payment is made on following Friday.
- 182 days T-bills: These treasury bills get matured after 182 days, from the day of issue, and the auction is on Wednesday of non-reporting week. Moreover, these are repaid on following Friday, when the term expires.
- 364 days T-bills: The maturity period of these bills is 364 days. The auction is on every Wednesday of reporting week and repaid on the following Friday after the term gets over.
Treasury bills are backed by some advantages like no tax deducted at source, high liquidity and trade-ability, zero risks of default, transparency, good return on investment and so on.