What are Treasury bills or T-bills?
Treasury bills are Government bonds with a maturity of less than 1 year.
(Read: What is a Bond?)
T-bills are issued by the Government to meet its short-term expenditure requirements. It is also issued to regulate the money supply (liquidity) in the economy. For instance- if there is excess money supply in the economy, T-bills are issued to mop up the liquidity.
These bills pay no interest. They are issued at discount and redeemed at par. For example- A T-bill of Rs.100 (par value/ face value) and maturity 91 days may be issued to investors at Rs.98 (Rs.2 discount).
It means that the investor will pay Rs.98 to buy the T-bills worth Rs.100. At the end of 91 days, the investor will receive Rs,100 from the Government.
Therefore, the interest earned by the investor is the difference between the face value and the discounted purchase price of the bill. (Rs.100 – Rs.98 = Rs.2).
What is the concept of treasury bills in India?
The T-bills are issued through auctions conducted by the RBI.
At present, the Government of India issues three types of treasury bills, namely, 91-day, 182-day and 364-day. (91, 182 and 364 days are the different maturity periods.)
There are no treasury bills issued by State Governments.
T-bills offer short-term investment opportunities.
Treasury bills are available for a minimum amount of Rs.25,000 and in multiples of Rs. 25,000. It means if you want to purchase the bills, the minimum amount of investment is Rs.25000. Also, the total amount of investment should be in multiples of Rs. 25000.
While 91-day T-bills are auctioned every week on Wednesdays, 182-day and 364-day T-bills are auctioned every alternate week on Wednesdays.
The participants in the T-bills market are Individuals, Firms, Trusts, Institutions and Banks,
The banks held T-Bills for fulfilling their SLR or Statutory Liquidity Ratio requirements. Also, to borrow money under Repo from the RBI, banks keep treasury bills as security.
P.S. Bonds of longer maturity issued by the Government is known as dated securities.