Treasury Bills (T-Bills) – A Good Investment Option or Not

1. Treasury Bills (T-Bills) – A Good Investment Option or Not? Treasury bills are among the safest investments and within easy reach of retail investors. It allows one active non-competitive bid per retail investor. Recently the RBI has auctioned treasury bills at higher cut-off yields. The central government raised Rs.10,000 crore through this auction. Retail investors need to be more aware of the G-Sec market. Here you can understand who should invest in t-bills and why. What are T-bills (Treasury Bills)? Treasury bills (T-Bills) are the money market investment. These are short-term debt tools with a repayment guarantee on maturity. T-bills are offered at a discounted rate with three maturities. It can be a 91- days T-bill, 182-days T-bill and 364-days T-bill. The maximum maturity period is 364 days for zero-coupon rates. Investors can redeem them at face value during maturity. The return on t-bills is the difference between the maturity value or the face value. For clarity, a 91 day T-bill, a face value of Rs.100, can be issued at Rs.98.20. At maturity, the investor will receive the total face value of Rs.100; thus, the profit is Rs.1.60. You can also invest in Bonds from Bondsindia.com , know top 5 safe investments with stable returns in India and how to invest in fixed income securities

2. Who issues t- bills in India? These are one of the government securities. In India, the central government and RBI issues T-bills in the form of a promissory note to meet the country's short-term financial needs, such as infrastructure, hospitals, roads, highways, etc., to reduce the overall fiscal deficit. RBI issues t-bills to regulate the liquidity during a given time. During an economic boom in a country, high-value t-bills are issued to the public. It helps to aggregate the money supply in the economy.

4. Advantages of T-bills Maximum Safety RBI Issues t-bills on behalf of the central government of India. Therefore, it is considered highly secure. The government is liable to repay the investor within the stipulated duration. Even during the economic crisis, the government has to pay the invested funds to the investor. Liquidity These are government securities. You can sell the t-bills in the secondary market easily to meet your financial requirements during emergencies. Individuals looking for short term gains can invest in t- bills. Non-competitive bidding RBI auctions t-bills at regular intervals, generally every week, through non-competitive bidding. It allows retail investors to participate in such bids without quoting the price. It brings retail investors to the G-sec market easily. Flexible investment horizons T-bills are issued with different maturities – 91-days, 182-days, and 364-days. Investors can choose a maturity as per their financial requirements. No TDS Investors need not pay the tax deducted at source (TDS) upon redemption of t-bills. There is no hassle of claiming it again via IT returns if the investor falls under the taxable income bracket.

5. Better Returns than Bank FDs The returns on t-bills can be higher than bank FDs. In 2019, t-bills 91 days, 182 days, and 364 days were issued at the rate of 6.50%, 6.60%, and 6.70%, respectively. On the other hand, FDs are available at 4-5% with banks. Transparency The bidding method allows investors to participate in the auction of t- bills at transparent terms. The g-sec trading system is based on the settlement process called delivery vs payment, which makes t-bill investing more simplified. Also, pricing is more transparent in liquid securities, which reduces the chances of being misinformed. Disadvantages of T-bills Short term taxation T-bills offer short term capital gain opportunities and attract short term capital gains (STCG) taxes as per tax slab rates that are higher than long term capital gains (LTCG). No interest Generally, t-bills are zero-coupon debt securities, and no interest is paid to the investors. However, these are issued at discounted rates, and the investor gets the full face value at maturity, thus offering gains to the investor. Lower returns than stock investments T-bills are known to offer safe but lower returns than stock market investments. These zero-coupon securities are issued at a discount and remain the same even if the market condition improves. On the

6. other hand, stock markets are influenced heavily by market fluctuations. Who can buy t-bills? Institutional investors, banks and their primary dealers, insurance companies, mutual funds, provident funds, and retail investors can invest in t-bills. Who should consider T-bills? •Risk-averse investors can invest in these short term debt tools. •T-bills are utilised to diversify the investment portfolio and minimise the risk. How to Invest in Treasury Bills (t-bills) in India Participate online in a secure, short-term investment to diversify your investment portfolio through the RBI Retail Direct Scheme. It helps retail participants to invest in t-bills from primary as well as secondary markets. Individuals can open an online Retail Direct Gilt Account with the RBI under the scheme and link it to their savings bank accounts. The RBI facilitates investors with a non-competitive bidding process to invest in t-bills. Retail investors can partake in this process by placing bids with a scheduled commercial bank also. Conclusion Thus, t-bills are 100% guaranteed investments to repay your invested amount and provide gains. T-bills are one of the secured investments in India and a yes to include in your investment portfolio. You can park your surplus funds in this safe tool to enjoy substantial gains.