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Home Economy

Treasury Bills

October 1, 2020
in Economy
Reading Time: 2 mins read
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Treasury Bills
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Treasury bills or T-bills, which are money market instruments, are short term debt instruments issued by the Government of India and are presently issued in three tenors, namely, 91 day, 182 day and 364 day. Treasury bills are zero coupon securities and pay no interest. Instead, they are issued at a discount and redeemed at the face value at maturity.

Features of Treasury Bills

  • For example, a 91 day Treasury bill of ₹100/- (face value) may be issued at say ₹ 98.20, that is, at a discount of say ₹1.80 and would be redeemed at the face value of ₹100/-. The return to the investors is the difference between the maturity value or the face value (that is ₹100) and the issue price.
  • Funds collected through such tools are typically used to meet short term requirements of the government, hence, to reduce the overall fiscal deficit of a country.
  • They are also used to regulate the total currency in circulation at any given point of time. During times of economic boom leading to high and persistent inflation rates in the country, high-value treasury bills are issued to the public, which, thereby, reduces aggregate money supply in an economy.
  • T-bills have a maximum maturity of 364 days. Hence, they are categorized as money market instruments (money market deals with funds with a maturity of less than one year).
  • The Reserve Bank of India (on behalf of the government) conducts auctions usually every Wednesday to issue T-bills. 
  • Treasury bills are usually held by financial institutions including banks. They have a very important role in the financial market beyond investment instruments. Banks give treasury bills to the RBI to get money under repo. Similarly, they can keep it as part of SLR.
  • As per the regulations put forward by the RBI, a minimum of Rs. 25,000 has to be invested by individuals willing to procure a short term treasury bill. Furthermore, any higher investment has to be made in multiples of Rs. 25,000.
  • Individuals enjoy comprehensive security on the total funds invested in T-bills as they are backed by the highest authority in the country, and have to be paid even during an economic crisis.
  • T-bills can be resold in the secondary market, thereby allowing individuals to convert their holding into cash during emergencies.
  • The primary disadvantage of government treasury securities is that they are known to generate relatively lower returns when compared to standard stock market investment tools.
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Source: RBI website
Tags: Prelims

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