Treasury Bills: Meaning, Features & How They Work

Learn about Treasury Bills to discover how short-term government securities offer low-risk investment and liquidity.

Treasury Bills, commonly called T-Bills, are short-term government debt instruments that serve as one of the safest investment options available in the financial market. Issued by the Government of India and managed by the Reserve Bank of India (RBI), these securities help the government meet short-term funding needs while offering investors a secure avenue to park surplus funds. Their low risk, high liquidity, and predictable returns make them commonly chosen by conservative investors, institutions, and traders seeking stability.

T-Bills are issued at a discount to face value and redeemed at par, with the difference representing the investor’s return. Since they carry sovereign backing, they are virtually free from default risk, making them a foundation of India’s money market ecosystem.

Treasury Bills are money market instruments issued by the government to raise funds for short-term requirements. They have maturities of less than one year, making them highly liquid. Instead of paying interest periodically, T-Bills are sold at a discounted price and redeemed at full face value on maturity.

For example, if a ₹100 T-Bill is issued at ₹96, the ₹4 difference earned upon redemption is the investor’s return.

T-Bills play a vital role in maintaining financial stability and liquidity in the economy. Their importance stems from:

• Sovereign security, ensuring the highest level of safety
  

• Benchmarking tools for interest rates in the money market
  

• Investment options for banks, financial institutions, and retail investors
  

• Short-term financing for the government with low borrowing costs

Because of their risk-free nature, they are widely used in liquidity management and portfolio diversification strategies.

Some of the core features include:

• Issued at a discount and redeemed at face value
  

• Short maturities of 91 days, 182 days, and 364 days
  

• No periodic interest payment—returns arise from the discount
  

• Highly liquid and tradable in the secondary market
  

• Backed by the Government of India, ensuring safety
  

• Can be purchased via auctions or through brokers/online platforms

These characteristics make T-Bills suitable for investors prioritising safety over high returns.

In India, the RBI issues T-Bills in three maturity formats:

91-Day Treasury Bills

Popular for short-term parking of funds by banks and corporations.

182-Day Treasury Bills

Suitable for investors seeking medium-term liquidity with higher returns than 91-day bills.

364-Day Treasury Bills

Suitable for those comfortable with slightly longer holding periods to earn improved yields.

Each type serves different investor profiles depending on liquidity needs and return expectations.

T-Bills follow a simple mechanism:

1. Issued at a discount through RBI auctions
   

2. Investors purchase them at the discounted price
   

3. Held until maturity (or sold in the secondary market)
   

4. Redeemed at face value, generating a risk-free return

Example:

A ₹1,00,000 T-Bill issued at ₹96,000 will yield ₹4,000 upon maturity.

The return is essentially the difference between the purchase price and the amount received at maturity.

In India, T-Bills are purchased by:

• Banks
  

• Mutual funds
  

• Corporates
  

• Insurance companies
  

• Retail investors (via NSE GoBid, brokers, or banks)

They are a major component of India’s money market, helping maintain liquidity and ensuring safe investment avenues for both institutions and individuals.

The Government of India, through the Reserve Bank of India, issues T-Bills. RBI conducts weekly auctions where participants bid for various maturities. Retail investors can also participate through non-competitive bidding, making T-Bills widely accessible.

A Treasury Bill calculator helps investors estimate returns by calculating the yield based on:

• Purchase price
  

• Face value
  

• Maturity period

This tool is useful for comparing yields across different maturities and evaluating investment decisions.

Key advantages include:

• Highest safety due to sovereign backing
  

• Guaranteed returns—no risk of default
  

• High liquidity, enabling ease of trading
  

• Suitable for short-term investments
  

• Useful for portfolio diversification
  

• Attractive for institutional liquidity management

They’re often used during uncertain market conditions.

Although T-Bills are safe, they come with certain limitations:

• Lower returns compared to riskier assets
  

• Interest rate fluctuations may affect market prices before maturity
  

• Not suitable for long-term wealth building
  

• Tax on returns may reduce net gains

These drawbacks make them suitable primarily for conservative or temporary investments.

Suppose a 182-day T-Bill with a face value of ₹1,00,000 is issued at ₹95,500.
Return = ₹1,00,000 – ₹95,500 = ₹4,500
Yield = (4,500 / 95,500) × 100 ≈ 4.71%

This illustrates how investors earn predictable returns regardless of market volatility.

India’s treasury bill market is active and well-regulated. Prices often move based on:

• RBI policy rates
  

• Demand from banks and mutual funds
  

• Liquidity conditions
  

• Inflation expectations

While yields fluctuate, T-Bills consistently remain the safest short-term instrument.

Treasury Bills are one of the secure and liquid investment options available to Indian investors. They offer predictable returns, short-term horizons, and sovereign-backed safety—making them suitable for individuals and institutions seeking capital protection.

Though they may not deliver high returns, their role in risk management, liquidity parking, and diversification remains unmatched.

This content is for informational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.