What Are Government Of India’s Treasury Bills? Are They Good Investments For You?

Treasury bills are money market instruments issued by the government of India to finance its short term financial requirements. You can buy them through the RBI Retail Direct platform or stock exchanges, but should you?
RBI announced that it will hold the auction of the government’s treasury bills.
RBI announced that it will hold the auction of the government’s treasury bills.

The Reserve Bank of India (RBI) on August 5, 2022 announced that it will hold the auction of the government’s treasury bills worth Rs 21,000 crore.

The RBI announced in a press statement that the bids for the auction should be submitted in electronic format on its core banking solution (e-Kuber) system on Wednesday, August 10, 2022, while the payment by successful bidders will have to be made on Thursday, August 11, 2022.”

The auction will be price-based and will be done using multiple price methods. The RBI has also fixed the times slots for placing the competitive and non-competitive types of bids. The competitive bidding will be open for one hour from 10.30 am to 11.30 am, while the non-competitive bids will have a half-hour window from 10.30 am to 11 am.

Now, what are treasury bills to start with?

What Are Treasury Bills?

Treasury bills or T-bills are money market financial instruments and are of a short-term nature. They are issued by the Government of India and are ‘zero coupon’ type debt instruments, and as such, pay no interest.

Ankit Gupta, founder, BondsIndia.com, a bond buying platform, explained what zero coupon type of debt instrument means.

“Zero coupon means that they will not pay any interest on maturity, but rather these instruments (T-bills and others), are issued at a discount to face value. The difference between the issue price and the face value is the earning of an investor in real terms. For example, if a T-bill with par value or face value Rs. 10,000 is sold for Rs. 9,000, then the interest it is offering is Rs 1,000,” he says.

Harish Menon, co-founder, House of Alpha Wealth Management, said that at present, T-bills are issued in tenures of 91 days, 182 days and 364 days. So, if someone or some institution wants to park their money and earn some interest on it for the short term, then treasury bills are a good option.

Should You Go For T-bills?

Menon advised that anybody who has an investment horizon of up to one year for fulfilling their short term goals and they don’t want to “undertake any kind of risk in their investments,” can consider investing in T-bills.

Menon added that if someone says that he will get better returns in credit risk bonds and why should he/she invest in T-bills, then it is important to know that T-bills are issued by the Government of India, and hence, carry no maturity risk, while the same is not so for credit risk bonds.

“It is not that credit risk bonds will always default, but in the rare event they do, you stand to make a loss in your investment, which will never happen in case of T-bills. T-bills will always have a 100 per cent redemption possibility,” Menon adds.

Treasury Bills Or Fixed Deposit?

Menon shared an interesting comparison, wherein he outlined that T-bills can be compared with short term fixed deposits (FD) too. One can also do an FD, for say, three-to-six months or even a year.

That said, treasury bills come with the added advantage of being open for sale in the secondary market (provided there is sufficiently good liquidity and desired price). In case of an FD, if you liquidate it before maturity, the bank could levy charges.

How To Buy T-Bills In India?

Gupta said that retail investors in India can buy T-bills by opening up a ‘Retail Direct Scheme Account’ with the Reserve Bank of India (RBI)

Apart from this, retail investors can also buy T-bills from the stock exchange and other primary and secondary markets.

Menon, however, pointed out that the liquidity is an issue when someone tries to sell their T-bill early, i.e., before maturity. This is because the order price at which you might want to sell the respective T-bill may not be matched by any buyer, and then you have to either adjust the price to match the closest to the buyer’s offer, or, cancel the transaction.

Money market mutual funds are also an option where retail investors can buy T-bills. Menon pointed out that money market funds invest in a variety of money market instruments, and not just solely on T-bills. Hence, if an investor only wants to buy T-bills and nothing else, the RBI platform is the best gateway.

How Much Treasury Bills Did RBI Sell Recently?

According to data published by the RBI on August 3, 2022, the 91-day T-bill had a notified issue amount of Rs 9,000 crore and 115 bids were received worth Rs 32,740.21 crore. The weighted average price/yield for this 91-day T-bill was 5.4898 per cent.

For the 182-day T-bill, the notified amount was Rs 7,000 crore, and 123 bids were received worth Rs 26,478.80 crore. The weighted average price/yield for this 182-day T-bill was 5.8765 per cent.

For the 364-day T-bill, the notified amount was Rs 5,000 crore, and 170 bids were received worth Rs 28,259.40 crore. The weighted average price/yield for this 364-day T-bill was 6.2140 per cent.

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