Treasury Bills (T-Bills)

As part of its open market operations (OMO) strategy, the Reserve Bank of India (RBI) also releases these treasury notes in an effort to control inflation and people's borrowing and spending patterns. Strong-value Treasury bills are released to the public during periods of economic boom that cause high and sustained inflation rates in the nation, which reduces the overall amount of money in an economy. It successfully reduces the soaring demand rates, which harms the less advantaged groups in society through high pricing. 

How do Treasury Bills work in India? 

Consider purchasing a handful of units of 150 INR each treasury bill at a reduced rate of Rs.145 INR. You may cash in it at Rs.150 at maturity to receive Rs.4 in profit for each unit. 

The RBI issues the Treasury Bills as part of its open market activities. These bills are typically printed to manage the overall money supply during times of high or ongoing inflation and economic growth. Consequently, the country's poorer regions will no longer see quickly rising prices. 

Types of T-Bills in India 

There are 4 types of T-Bills in India. They are: 

1. 14-day treasury bill 
2. 91-day treasury bill 

1. 182-day treasury bill 
2. 364-day treasury bill 

Features of Treasury Bills 

The features of treasury bills are given below: 

1. Trading:
   The investment strategy is a crucial component of the key treasury bill information. Depending on the total bids submitted on the major stock exchanges, the RBI auctions such securities in the market on a weekly basis (on Wednesday) in the name of the central government. Investors have the option of purchasing such public assets from commercial banks that participate in the depository system or from other licenced primary dealers (PDs), with a T+1 settlement process for the security transfer. For people who would rather invest through open-ended mutual fund schemes, several of them also contain treasury bills in their corpus. 
2. Minimum Investment:
   A minimum investment amount of Rs.25,000 must be made by a person, as per RBI regulations, to purchase a short-term treasury bill. The investor may only invest in multiples of Rs 25,000 if they intend to make investments more than this minimal amount. 
3. Returns are Guaranteed:
   G-Sec Treasury Bills pay no interest on the entire amount of deposits. Instead, because these assets are offered for sale in the market at a discount, investors stand to gain capital from such purchases. Investors receive the whole market value of this bond upon redemption, enabling them to realise large returns on their initial capital. 

What are the Advantages of Investing in T-Bills? 

Some of the advantages of investing in T-Bills are given below: 

1. Bidding is not competitive: The RBI conducts non-competitive auctions of Treasury Bills every week, enabling consumer and smaller investors to participate in these bids sans having to specify the rate of return or price. It exposes more novice investors to the market for government securities, resulting in larger cash flows to the financial market. 
2. T-Bills are not risky: T-Bills are undoubtedly one of the most well-liked short-term government schemes offered by the RBI and backed by the Central Government. Such equipment is a liability for the Indian Government because it must be paid back by the deadline. Thus, people benefit from complete security on the total amount invested because the scheme is sponsored by the government and must be paid even during a recession.   
3. Liquidity: As previously mentioned, a government treasury bill, which has the longest maturity time of 364 days, is issued as a short-term financing instrument for the government. People can choose to store their money in such assets if they want to make short-term gains through safe investments. Additionally, such G-secs can be traded in the secondary market, enabling people to turn their holding into cash in times of need. 

T-Bills Limitations 

Some of the limitations of T-Bills are given below: 

1. Taxation: Treasury bill returns are liable for STCG tax. They will be taxable at the investor's applicable slab rate. 
2. T-Bills are affected by inflation: Inflation may have an effect on the returns received on Treasury Bills. It takes place when the return rate becomes lower than the inflation rate. 
3. Returns are low: Treasury bills offer safe yields, but these returns are small. The returns are negligible in comparison to other options for investing, and you might not be able to achieve your financial objectives with them. 

How are the T-Bills Price Influenced?

Given below are the reasons due to which the price of T-Bills is influenced: 

1. Government’s Funding Requirement: In order to raise the funds needed to meet their short-term needs, the government releases Treasury bills. As a result, the capital requirement and RBI's monetary policy decisions have an impact on T-bill pricing. 
2. Risks as seen in the Market: Market risk for other categories of government securities is the outcome of the negative movement of the assets' prices as a result of changes in interest rates. Losses in value are the outcome. Treasury bills, on the other hand, do not provide interest to investors. They do provide assured returns from the sale of Treasury Bills. 
3. Inflation: The returns you receive on Treasury Bills might be impacted by inflation. The money you put into government security may be useless, for instance, if the discount rate yields a return of 2% and the rate of inflation is 5%. 

Why Should you Consider Investing in T-Bills?

Government treasury bills are a great investment option for people wishing to keep extra cash in a safe place and earn high returns. Additionally, because both the par value and the rate of discount are disclosed in advance, investors benefit from complete transparency throughout the transaction process. Additionally, it helps with the process of budgeting for effective wealth growth. 

Consequently, one of the safest investment options in the nation is a Treasury bill. It is popular for diversification of portfolios in the case of seasoned investors who devote an amount of their investments into government securities to reduce the total risk to their corpus. It is not just excellent for risk-averse people tired of stock market tools. These sovereign notes are essential for controlling an economy's overall money supply, which in turn affects how much money is gathered for the capital market.