Treasury bills are money market instruments issued by the Government of India as a promissory note with guaranteed repayment at a later date. Funds collected through such tools are typically used to meet short term requirements of the government, hence, to reduce the overall fiscal deficit of a country.

They are primarily short-term borrowing tools, having a maximum tenure of 364 days, available at zero coupons (interest) rate. They are issued at a discount to the published nominal value of government security (G-sec).

Government treasury bills can be procured by individuals at a discount to the face value of the security and are redeemed at their nominal value, thereby allowing investors to pocket the difference. For example, a 91-day treasury bill with a face value of Rs. 120 can be bought at a discounted price of Rs. 118.40. Upon maturity, individuals are eligible to receive the entire nominal value of Rs. 120, which allows them to realise a profit of Rs. 1.60. Now, take a look at other important treasury bill details.

Why Does the Government Issue Treasury Bills?

A short term treasury bill helps the government raise funds to meet its current obligations, which are in excess of its annual revenue generation. Its issue is aimed at reducing total fiscal deficit in an economy, and also in regulating the total currency in circulation at any given point of time.

The Reserve Bank of India (RBI) also issues such treasury bills under its open market operations (OMO) strategy to regulate its inflation level and spending/borrowing habits of individuals. During times of economic boom leading to high and persistent inflation rates in the country, high-value treasury bills are issued to the public, which, thereby, reduces aggregate money supply in an economy. It effectively curbs the surging demand rates, and in turn, high prices hurting the poorer sections of the society.

Alternatively, a contractionary OMO regime is undertaken by the RBI during times of recession and economic slowdown through a reduction in treasury bill circulation and reduced discounted value of the respective bonds. It disincentives individuals into channelling their resources in this sector, thereby boosting cash flows to the stock markets instead, ensuring a boost in the productivity of most companies. Such a rise in productivity has a positive impact on the GDP and aggregate demand levels in an economy.

Hence, a treasury bill is an integral monetary tool used by the RBI to regulate the total money supply in an economy, along with its fundraising usage.

Types of Treasury Bill 

The distinction between different treasury bill types is made based on their tenure, as enumerated below:

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  • 14-day treasury bill
  • 91-day treasury bill
  • 182-day treasury bill
  • 364-day treasury bill

While the holding period remains constant for all types of treasury bills issued (as per the categories mentioned above), face values and discount rates of such bonds change periodically, depending upon the funding requirements and monetary policy of the RBI, along with total bids placed.

Features of Treasury Bills

  • Minimum investment 

As per the regulations put forward by the RBI, a minimum of Rs. 25,000 has to be invested by individuals willing to procure a short term treasury bill. Furthermore, any higher investment has to be made in multiples of Rs. 25,000.

  • Zero-coupon securities

G-Sec treasury bills don’t yield any interest on total deposits. Instead, investors stand to realise capital gains from such investments, as such securities are sold at a discounted rate in the market. Upon redemption, the entire par value of this bond is paid to investors, thereby allowing them to realise substantial profits on total investment.

  • Trading 

The method of investment forms an integral part of essential treasury bill details. The RBI, on behalf of the central government, auctions such securities every week (on Wednesday) in the market, depending upon the total bids placed on major stock exchanges. Investors can choose to procure such government assets through depository participant commercial banks, or other registered primary dealers (PDs), wherein the security transfer follows a T+1 settlement process.

Alternatively, many open-ended mutual fund schemes also include treasury bills in their corpus for individuals willing to invest through such funds.

Yield Rate on Treasury Bills

The percentage of yield generated from a treasury bill can be calculated through the following formula –

Y = (100-P)/P x 365/D x 100

Where Y = Return per cent

P = Discounted price at which a security is purchased, and

D = Tenure of a bill

Let us consider a treasury bills example for better understanding. If the RBI issues a 91-day treasury bill at a discounted value of Rs. 98 while the face value of the bill is Rs. 100, the yield on such G-Secs can be determined as follows –

Yield = (100 – 98)/98 x 365/91 x 100

= 8.19%

Advantages of Government Treasury Bills

  • Risk-free

Treasury bills are one of the most popular short-term government schemes issued by the RBI and are backed by the central government. Such tools act as a liability to the Indian government as they need to be repaid within the stipulated date.

Hence, individuals enjoy comprehensive security on the total funds invested as they are backed by the highest authority in the country, and have to be paid even during an economic crisis.

  • Liquidity

As stated above, a government treasury bill is issued as a short-term fundraising tool for the government and has the highest maturity period of 364 days. Individuals looking to generate short term gains through secure investments can choose to park their funds in such securities. Also, such G-secs can be resold in the secondary market, thereby allowing individuals to convert their holding into cash during emergencies.

  • Non-competitive bidding

Treasury bills are auctioned by the RBI every week through non-competitive bidding, thereby allowing retail and small-scale investors to partake in such bids without having to quote the yield rate or price. It increases the exposure of amateur investors to the government securities market, thereby creating higher cash flows to the capital market.

Limitations of Treasury Bill

The primary disadvantage of government treasury securities is that they are known to generate relatively lower returns when compared to standard stock market investment tools. Treasury bills are zero-coupon securities, issued at a discount to investors. Hence, total returns generated by such instruments remain constant through the tenure of bond, irrespective of economic conditions and business cycle fluctuations.

It comes in contrast to the stock market, wherein market variations heavily influence returns generated by both equity and debt tools. Consequently, in the event of an upswing in the stock market, the yield rate of associated tools is significantly higher than the capital gains generated through G-Sec investments.


Short term capital gain (STCG) realised on these bills is subject to STCG tax at rates applicable as per the income tax slab of an investor. Nonetheless, one major advantage of such G-Sec schemes is that retail investors are not required to pay any tax deducted at source (TDS) upon redemption of these bonds, thereby reducing the hassles of claiming back the same through income tax returns if he/she does not fall under the taxable income bracket.

Who Should Consider Investing in Treasury Bills?

Government treasury bills are an ideal tool to invest in for individuals looking to park surplus funds in a secure investment tool to enjoy substantial yields. The RBI facilitates a non-competitive bidding process for such bonds, allowing individual investors to partake in the same by placing their bid with the respective primary dealer of a scheduled commercial bank. Also, as details regarding the discount rate and par value are published beforehand, individuals enjoy full transparency in the investment process. It also aids in the process of financial planning for robust wealth accumulation.

Hence, a treasury bill is one of the most secure forms of investment available in the country. It is not only ideal for risk-averse individuals weary of stock market tools but is also popular for portfolio diversification in the case of experienced investors who allocate a portion of their funds into government securities to dilute the overall risk to their corpus. These sovereign bills play a crucial role in regulating the total money supply in an economy, which, in turn, influences funds pooled into the capital market.