The Government of India approaches to the financial market to raise funds from the general public by selling different types of government securities. Treasury bills (T-Bills) are one of the instruments which are used for short term requirement of funds. The Government also raises funds from the market for a longer duration (up to 40 years) by using other instruments like Dated Security (Government Bonds) depending on the requirement of money.
Thus Government utilise different instruments to raise funds from the financial market.
There are various infrastructure projects, construction and development projects, Government schemes and various free scheme are performing across the country.
Due to this sometimes government may suffer a shortage of funds due to mismatch of cash flow or excessive expenditures, hence need to arrange funds.
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What are Treasury Bills?
“Treasury bills (T-Bills) are the Government Securities defined as debt instruments through which Government raises the funds for the short term period less than one year.”
It is also called money market instruments as it is issued for a shorter period of time.
Treasury Bills can be issued by the Central Government only not by the State Governments. T Bills are issued with a maturity period of 91 days, 182 days and 364 days. Treasury bills are sold by the Reserve Bank of India (RBI) on the behalf of Government of India.
The RBI sells treasury bills and investors purchase it to park their excess funds to earn interest with no risk.
For instance, a T bill of face value Rs 10,000/- with maturity date 91 days (say) will be sold at just Rs 9,500/-, thus the investor will get discount of Rs 500/- while purchasing a T bill. Further, on date of maturity, he will entitle to redeem the whole amount (10,000/-).
T bills don’t offer coupon (interest rate) instead are sold on discount price on face value. That’s why it is also known as ‘Zero-Coupon Bond’.
Since T bills are secured by the government of India itself, hence there is no risk of defaults. Therefore, it is also known as ‘Guilt Edged Security’ instruments. Thus we can say treasury bills are one of the safest instrument while it comes to investment.
- Treasury bills (T bills) are the Government securities issued by the Central Government of India only.
- Maturity Period of T bills are either 91 days, 182 days or 364 days.
- T bills offer zero-coupon, this means issued at discount on face value.
- T bills are backed up by the Government of India hence carry no risks.
Features of Treasury Bills:
Government securities like treasury bills laid down the following benefits.
- Offers fixed returns along with shorter tenure such as 91 days, 182 days and 364 days.
- Provide sovereign guarantee, means credit guaranteed by the Government of India.
- No TDS is deducted like fixed deposits, taxes applicable as per individual’s income tax slab at the end of the financial year.
- Interest rates can be bid through participating in an auction conducted by RBI on Wednesday of every week.
- Also facilitates Non-comparative bidding if any don’t want to compete in the auction.
Process of issuing T-Bills:
Government securities are issued through an auction organised by the Reserve Bank of India at E- KUBER which is a Core Banking Solution (CBS) platform of RBI.
The financial institutions such as commercial banks, primary dealers, scheduled urban cooperative banks (UCBs) Insurance companies and provident funds which maintain a current account and securities account (SGL account) with RBI are eligible to participate in the auction.
All other NonEKUBER can also participate in primary bidding but through commercial banks and primary dealers only. For this, they have to open a Gilt Account with scheduled commercial and primary dealers.
A Gilt Account is a non-materialistic account maintained with commercial banks or primary dealers.
The RBI organises the auction for issuance of treasury bills with tenure 91 days, 182 days, 364 days on every Wednesday and results of the auction is declared at a certain time, for T Bills it is 1:30 PM.
Further, settlement of auctioned T bills is done on the next working day of the trading day. The RBI announces the schedule of issuance of treasury bills for the upcoming quarter at last week of previous months and releases the issue details by press release on its official website every week.
How to buy Treasury Bills?
The simplest way to buy or invest in government securities like T- bills or government bonds is Zerodha Broking Ltd, an online brokerage services.
Though one can also trade in G-sec through your depository banks by a Demat account, this mode of investment is still not popular in retail investors.
Here are a few easy steps to buy T bills through Zerodha.
Step 1: Open a Demat and trading account with Zerodha which is linked to your bank accounts.
Step 2: Zerodha offers non-competitive bidding to their clients. One can place order whatever amount you wish to invest, however, keep in mind, the minimum amount you’ll have to invest in T bills is Rs 10,000/- and one can place an order in multiple of ten thousand as well.
Step 3: Place order whatever amount you wish to invest (minimum 10,000/-) from Monday to Tuesday through your Zerodha account and funds will be deducted from your trading a/c and further on a successful allotment, treasury bills will be credited to your Demat account.
Step 4: All Payment regarding your government securities (interest rates or coupon in case of bonds) will be credited to your bank account on time to time.
So we have understood all about treasury bills, how T Bills are issued? and how anyone can buy T bills easily using Zerodha trading account.
In a nutshell, government securities like treasury bills are one of the popular, safest, optimum returns and shorter tenure instrument through which any small or professional investor can park their spare funds and earn good returns with gilt-edged security. Treasury bills are the most popular mode of investment in the United States, however, in India, it is still not so preferred.
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