Treasury Bills (T-Bills): Safe Government Investment
Complete guide to Treasury Bills - what T-Bills are, how to invest through RBI Retail Direct, auction process, returns calculation, and comparison with FDs.
Introduction: The Government’s Short-Term IOUs
“When you want absolute safety with reasonable returns, Treasury Bills are the gold standard—backed by the full faith of the Government of India.”
Treasury Bills are the safest short-term investment available in India. They’re issued by the government to meet its short-term funding needs and offer retail investors a risk-free option. With the launch of RBI Retail Direct, individual investors can now buy T-Bills easily.
What Are Treasury Bills?
Definition
Treasury Bills (T-Bills) are short-term government securities with maturities up to one year, issued at a discount and redeemed at face value.
Key Features
| Feature | Details |
|---|---|
| Issuer | Government of India |
| Risk | Zero credit risk |
| Maturity | 91, 182, or 364 days |
| Interest | Discount to face value |
| Minimum | ₹10,000 (₹1 lakh earlier) |
| Liquidity | Tradeable in secondary market |
How Discount Works
You Pay Less, Get Face Value:
| Parameter | Value |
|---|---|
| Face value | ₹100 |
| Purchase price | ₹98.50 (example) |
| Maturity amount | ₹100 |
| Gain | ₹1.50 (implied interest) |
Types of Treasury Bills
91-Day T-Bill
| Feature | Details |
|---|---|
| Maturity | 91 days (~3 months) |
| Auction | Weekly (Wednesday) |
| Settlement | T+1 |
| Use case | Very short-term parking |
182-Day T-Bill
| Feature | Details |
|---|---|
| Maturity | 182 days (~6 months) |
| Auction | Fortnightly |
| Settlement | T+1 |
| Use case | Medium short-term |
364-Day T-Bill
| Feature | Details |
|---|---|
| Maturity | 364 days (~1 year) |
| Auction | Fortnightly |
| Settlement | T+1 |
| Use case | Near 1-year parking |
T-Bill Auction Process
Auction Types
Competitive Bidding:
- Specify price/yield you want
- May or may not be accepted
- Used by institutions
Non-Competitive Bidding:
- Accept whatever yield emerges
- Guaranteed allotment
- Best for retail investors
Auction Calendar
| Day | T-Bill Type |
|---|---|
| Wednesday | 91-day |
| Alternate Wednesday | 182-day |
| Alternate Wednesday | 364-day |
Schedule: RBI publishes annual auction calendar
How Auction Works
- Announcement: RBI announces auction (Tuesday)
- Bidding: Submit bids by 10:30 AM Wednesday
- Results: Announced same day
- Settlement: T+1 (Thursday)
- Holding: In your RBI Retail Direct account
Cut-Off Price/Yield
Determination:
- All competitive bids sorted
- Accepted from highest price downward
- Until notified amount filled
- Cut-off price = lowest accepted price
Non-Competitive Bidders:
- Get allotment at weighted average price
- Of all accepted competitive bids
Calculating T-Bill Returns
Yield Formula
$$Yield = \frac{100 - Price}{Price} \times \frac{365}{Days} \times 100%$$
Example Calculations
91-Day T-Bill:
| Parameter | Value |
|---|---|
| Price | ₹98.50 |
| Face value | ₹100 |
| Days | 91 |
| Yield | (100-98.50)/98.50 × (365/91) × 100 = 6.11% |
364-Day T-Bill:
| Parameter | Value |
|---|---|
| Price | ₹94.00 |
| Face value | ₹100 |
| Days | 364 |
| Yield | (100-94)/94 × (365/364) × 100 = 6.41% |
Current Yields (Approximate)
| Tenor | Yield Range |
|---|---|
| 91-day | 6.5-7.0% |
| 182-day | 6.6-7.2% |
| 364-day | 6.7-7.3% |
Note: Yields change based on market conditions
How to Invest in T-Bills
RBI Retail Direct
The Easiest Way:
| Step | Action |
|---|---|
| 1 | Open RBI Retail Direct account |
| 2 | Complete KYC (online) |
| 3 | Link bank account |
| 4 | Place bid during auction |
| 5 | Amount blocked, allotment next day |
| 6 | T-Bill credited to your account |
Requirements:
- PAN card
- Aadhaar (for e-KYC)
- Bank account
- Valid email and mobile
NSE goBID
Through Stock Exchange:
| Step | Action |
|---|---|
| 1 | Access through broker/bank |
| 2 | Place order during auction |
| 3 | Demat account needed |
| 4 | Allotment credited |
Secondary Market
Buy Anytime (NDS-OM):
- After auction, T-Bills trade
- Buy from secondary market
- May pay premium/discount to yield
- Need institutional access
Taxation of T-Bills
Tax Treatment
| Aspect | Treatment |
|---|---|
| Interest type | Discount is taxable |
| Tax rate | As per income slab |
| TDS | None |
| When taxable | At maturity |
| LTCG/STCG | N/A (treated as interest) |
Example
| Parameter | Value |
|---|---|
| Purchase price | ₹94,000 (for ₹1 lakh face) |
| Maturity value | ₹1,00,000 |
| Gain | ₹6,000 |
| Tax (30% slab) | ₹1,800 |
| Post-tax gain | ₹4,200 |
| Post-tax yield | ~4.47% |
Tax Efficiency
For High Tax Bracket:
- Effective yield lower after tax
- Compare with tax-free options
- But safety is unmatched
T-Bills vs Bank FDs
Comparison
| Feature | T-Bills | Bank FD |
|---|---|---|
| Safety | Government-backed | Bank deposit insurance (₹5L) |
| Return | Market-linked | Fixed at booking |
| Liquidity | Tradeable | Premature penalty |
| Taxation | Same (interest income) | Same |
| Minimum | ₹10,000 | ₹1,000 |
| Lock-in | None (sell anytime) | Yes (with penalty) |
When T-Bills Better
| Situation | Reason |
|---|---|
| Amount > ₹5 lakh | Full government backing |
| Need liquidity | Can sell in market |
| Rate uncertainty | Participate in rate changes |
| Laddering strategy | Multiple maturities |
When FD Better
| Situation | Reason |
|---|---|
| Fixed rate wanted | Lock in current rate |
| Simplicity | Familiar product |
| Small amounts | Lower minimums |
| Senior citizen | Additional 0.5% often |
Investment Strategies
Laddering
Build Maturities Over Time:
| Month | Investment | Maturity |
|---|---|---|
| January | 91-day | April |
| February | 91-day | May |
| March | 91-day | June |
| … | … | … |
Benefits:
- Regular liquidity
- Average out rates
- Rolling deployment
Rate View Strategy
If Rates Rising:
- Buy shorter tenor (91-day)
- Reinvest at higher rates
- Avoid locking long
If Rates Falling:
- Buy longer tenor (364-day)
- Lock higher rates
- Benefit from capital gain if sold
Safety Buffer
Use as Emergency Fund Component:
- Highly liquid
- Zero credit risk
- Reasonable returns
- Park portion of emergency fund
T-Bills in Liquid Funds
Fund Investment
How Liquid Funds Use T-Bills:
- Major portion in T-Bills
- Adds safety to portfolio
- Reduces credit risk
- Highly liquid holding
Direct vs Fund
| Aspect | Direct T-Bill | Liquid Fund |
|---|---|---|
| Return | Full yield | Yield - expense ratio |
| Taxation | Same | Same (debt fund) |
| Liquidity | T+1 sell | T+0/T+1 redemption |
| Minimum | ₹10,000 | ₹500 (SIP) |
| Diversification | Single | Multiple instruments |
Practical Tips
Bidding Tips
| Tip | Reason |
|---|---|
| Use non-competitive | Guaranteed allotment |
| Bid early | Avoid last-minute issues |
| Keep funds ready | Amount blocked at bidding |
| Track yields | Know recent cut-offs |
Monitoring
| What to Track | Where |
|---|---|
| Auction results | RBI website |
| Secondary yields | CCIL, FIMMDA |
| Policy rates | RBI announcements |
| Inflation | For real return |
Common Mistakes
| Mistake | Avoidance |
|---|---|
| Ignoring post-tax return | Calculate after tax |
| Not comparing | Check FD rates too |
| Over-allocation | Balance portfolio |
| Forgetting maturity | Track in calendar |
Key Takeaways
- Zero credit risk – Government of India backing
- Three tenors – 91, 182, 364 days
- Discount instrument – Buy low, redeem at face
- RBI Retail Direct – Easy retail access
- Non-competitive bidding – Guaranteed allotment
- Taxable – Interest income at your slab
- Liquid – Can sell in secondary market
Disclaimer
This article is for educational purposes only. While T-Bills are risk-free for credit, returns are not guaranteed and vary with market conditions. This is not investment advice.
Frequently Asked Questions
Q: Can I lose money in T-Bills? A: No credit risk—government will always pay. But if you sell before maturity in secondary market, price may be lower (interest rate risk).
Q: How do I open RBI Retail Direct account? A: Visit rbiretaildirect.org.in, complete online KYC with Aadhaar, link bank account. Process takes 1-2 days. Free to open and maintain.
Q: What’s the minimum investment? A: ₹10,000 face value (reduced from ₹1 lakh). Additional in multiples of ₹10,000.
Q: When do I get my money back? A: On maturity date, face value automatically credited to linked bank account. Or sell earlier in secondary market.
Q: Are T-Bills better than liquid funds? A: Depends. Direct T-Bills = full yield, no expense ratio. Liquid funds = diversification, professional management, lower minimum. For large amounts, direct may be better.
Treasury Bills are the foundational risk-free asset in India. Every investor should understand them—whether using directly or through funds, they form the bedrock of safe investing.