THE GOVERNMENT of any country issues debt instruments to finance their short term requirements.

T-Bill or Treasury bill, is one such short-term debt instrument issued by the central government.

Which T-Bills are issued in India?
-- Currently, three types of T-bills are issued – 91-day, 182-day and 364-day.

-- All T-bills are sold through an auction process, as per a fixed schedule announced by the Reserve Bank of India (RBI).

-- T-bills are available for a minimum amount of Rs 25,000.

-- These instruments are issued at a discount to the face value. On maturity of the T-Bill, the holder received the face value. 

Who invests in T-Bills?
-- T-bills are predominantly held by banks.

-- Today, even provident funds, mutual funds and trusts invest in T-bills. So, if you invest in a mutual fund scheme that invests in T-Bills, you can get an indirect exposure to such instruments.

Returns offered
The price of a government security in the markets is determined by the forces of demand and supply, as is the case in any market. It also depends on other factors such as:

-- Economic conditions.
-- General money market conditions, including the position of money supply in the economy.
-- Interest rates prevalent in the market and the rates of new issues.
-- Credit quality of the issuer.

Advantages of T-Bills

-- No default risk since they are issued by the government

-- Extremely liquid since institutions can park their short term excess funds.

-- Transparent since they are issued by the country's central bank. 

-- They can be traded in the secondary market. 

Read: Is your bank giving you less money?

Photograph: Joe Raedle/Getty

Disclaimer: The contents of the article or are for information purpose only and are in no way meant to be advisory in nature. The author does not claim responsibility for actions taken by readers on the basis of the Article. Please consult your financial advisor for your personal money management.

e-mail: Team Wealth

Suggest a story idea! Write to us!