Why investing in T-bills is a smart choice?

Treasury Bills and Government Securities are among the most trusted instruments for individuals seeking secure and reliable investment options. These government-backed options ensure capital safety and provide predictable returns, making them attractive for risk-averse investors.

What are Treasury Bills?

Treasury Bills are short-term debt instruments the Reserve Bank of India issued to meet its immediate financial needs. They are sold at a discount to their face value and redeemed at full value upon maturity.

Key features of T-Bills

• Maturity period: Typically, available in tenures of 91 days, 182 days, and 364 days.
• Risk-free nature: Backed by the government, T-Bills carry negligible risk of default.
• Returns: The return is the difference between the discounted purchase price and the face value.
• High liquidity: T-Bills can be easily bought and sold in the secondary market.

For example, if you purchase a 91-day T-Bill with a face value of ₹100 for ₹98, the ₹2 difference is your earnings upon maturity.

What are Government Securities?

Government Securities are a broader category of debt instruments issued to finance its budgetary deficit and other long-term financial needs. These include short-term instruments like T-Bills and long-term bonds with maturities ranging from five to 30 years.

Types of Government Securities

1. Short-Term Securities: Treasury Bills fall under this category, catering to immediate liquidity needs.
2. Long-Term Securities: These include dated bonds with regular interest payments, ideal for investors seeking steady income over an extended period.

Why invest in T-Bills?

Investing in T-Bills offers multiple advantages:

1. Safety of capital: T-Bills are the safest investment option, as the sovereign guarantee of the Government of India backs them.
2. Liquidity: Their short maturity period and active secondary market trading ensure that investors can quickly liquidate their holdings if needed.
3. Tax benefits: Returns from T-Bills are treated as capital gains, which may offer tax efficiency compared to regular interest income.
4. Portfolio diversification: T-bills act as a stabilising component, balancing out higher-risk investments like equities.

How to invest in T-Bills?

Investors can participate in the auction process conducted by the RBI to buy T-Bills. The process includes:

• Non-Competitive Bidding: Retail investors can bid without specifying a yield and are assured of allocation at the weighted average yield.
• Through Stock Exchanges: Some platforms allow retail investors to invest in T-Bills seamlessly.

Role of T-bills and G-Secs in financial planning

Both T-Bills and G-Secs serve as critical tools in financial planning:

• T-bills are ideal for short-term parking of surplus funds.
• Long-term G-Secs provide steady income and preserve capital over time.

Conclusion

Investing in Treasury Bills and Government Securities is prudent for individuals prioritising capital safety and stable returns. Whether you aim to park funds for the short term or seek consistent income, these instruments cater to diverse financial goals while ensuring peace of mind.