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Kotak e-Invest
Features
Ref. No. KLI/22-23/E-BB/492
Treasury bills (T-Bills) are short-term debt instruments issued by the government to raise funds. They are considered one of the safest investment options in India, as they are backed by the full faith and credit of the government.
Treasury Bills, or T-Bills, are financial instruments that provide good returns on investments. They might not be as flashy as stocks or as sophisticated as bonds. Still, they are essential tools for governments and investors alike.
If you are wondering what T-Bills are and how they work in India, you are in the right place. Let us dive right in!
Treasury Bills are government-backed short-term debt instruments. Think of them as IOUs (I Owe You) from the government. When you buy a T-Bill, you are essentially lending money to the government. In return, they promise to pay you back the face value of the bill on a specific date, which is usually less than a year from the issue date.
In India, T-Bills are available in the form of 91-day, 182-day, and 364-day bills. These numbers refer to the maturity period, which is how long you must wait to get your money back with interest. The longer the maturity, the higher the interest rate you can typically expect. Treasury bills interest rates are currently running in the range of around 6.7%-6.8%.
Treasury bills are short-term debt obligations and money market instruments with a maturity of less than a year. T-bills are promissory notes issued by the government to guarantee repayment, raise short-term funds, and maintain the national debt. They also contribute to reducing the country’s overall fiscal deficit.
Treasury bills are issued at a discounted value, which is then redeemed at their original face value upon maturity. However, the returns from these securities depend on how liquid the economy’s financial situation is.
There are three types of Treasury bill tenure:
They have a short maturity period.
They have a slightly longer maturity period than 91-day T-bills.
They have the longest maturity period.
The yield on T-bills is calculated on an annual basis. By, comparing the par value to its face value and using the maturity period to convert the return you get the yield.
where,
Y is the Yield
P is the discounted price of the T-bill purchased
D is the tenure
T-bills are subject to short-term capital gains at rates applicable as per the income tax slabs of investors. No TDS is deducted from retail investors on redemption.
As you know, T-bills are government-backed; they can be purchased in two ways. Let us take a look at them:
Open an online Retail Direct Gift Account (RDG) with the RBI and link it to your savings account. You can then bid in auctions held by the RBI occasionally. Let us look at the step-by-step guide for buying treasury bills directly through the RBI:
You have to go through the following steps to buy treasury bills through the primary and secondary markets:
Treasury bills are short-term securities sold at a discount and redeemed for face value, providing risk-free returns. T-bills are highly liquid, backed by government credit, and yield lower interest rates than other investments.
Zero-coupon securities are sold at a discount rate and redeemed at their face value when they mature. They do not offer interest on deposits.
₹25000 or multiples of this amount is the minimum investment needed to buy treasury bills.
Treasury bills are redeemed at face value, offering guaranteed returns.
T-Bills are like the reliable old friend of your investment portfolio. RBI issues them and is the safest investment option as they are liquid, provide guaranteed returns, and provide tax benefits. Here is why:
T-Bills are backed by the government, making them one of the safest investments.
You can easily buy and sell T-Bills in the secondary market, making them highly liquid investments.
T-Bills have short maturities so that you can get your money back quickly.
Their short-term nature also means they are less affected by interest rate fluctuations than long-term bonds.
The rate of return on Treasury bills is lower than that of other instruments. The auction process makes buying Treasury bills competitive as well. Here are some restrictions on Treasury bills that are mentioned below:
Treasury bills are zero-coupon securities issued at a discounted price. The interest you earn remains constant throughout the period, resulting in relatively low returns.
Treasury bill returns are taxable as short-term capital gains tax at your respective tax brackets.
Treasury bills are impacted by inflation. If the rate of return falls below the inflation rate, the real value of the returns decreases, diminishing your purchasing power.
Several factors influence prices, such as macroeconomic conditions, monetary policies, and the supply of treasury bills.
Here are some factors that influence the prices of treasury bills:
T-bill prices tend to fall as other assets rise, whereas, during the recession, investors invest in T-bills, increasing demand. They are affected by your risk tolerance.
Rising inflation can reduce T-bill prices, allowing you to retain your purchasing power.
The government issues T-bills with the goal of raising capital to meet their short-term needs. This influences T-bill prices.
1
Treasury bills have three maturity terms: 91 days, 182 days, and 364 days.
2
You will not receive any interest payment because treasury bills are zero-coupon securities traded at a discount to their face value.
3
T-bills are a safe investment instrument because they are issued by RBI.
4
The minimum amount needed for investing in treasury bills in India is RS.25000, as per RBI guidelines.
5
Treasury bonds are long-term debt instruments that provide consistent income, whereas Treasury bills are short-term debt instruments with lower returns.
Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.
Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors
In this policy, the investment risk in the investment portfolio is borne by the policyholder.
Kotak e-Invest
Features
Ref. No. KLI/22-23/E-BB/521
The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The content has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Further customer is the advised to go through the sales brochure before conducting any sale. Above illustrations are only for understanding, it is not directly or indirectly related to the performance of any product or plans of Kotak Life.
