Can ordinary investors invest in T-Bills?
Since the start of 2022, the market wasn’t doing particularly well, and Mr. Kapoor needed to safely set aside Rs. 50,000 for his short-term goal six months later. Now, the stock and mutual fund investors wouldn’t withdraw their money to put it into FDs. So, Mr. Kapoor diversified his portfolio by investing his Rs. 50,000 in Treasury bills (T-bills). After six months passed, he fulfilled his short-term goal using the same money.
![Treasury bill](https://grmbulls.com/wp-content/uploads/2022/10/download-10.jpg)
Now you might be wondering what are these T-bills, i.e., Treasury Bills, and how did Mr. Kapoor confidently invest in them even amidst market volatility…
Let's see T-Bills in detail
So, what is a T-Bill? Well, a Treasury bill is a money market instrument issued by the Government of India as a promissory note with a guaranteed repayment at a later date.
These bills are 0 Coupon securities, meaning no interest is paid to investors. But still, investors make a decent amount of money. Do you know how? Well, because securities here are issued at a discount but at the time of maturity it is redeemed at the face value.
For example, a 91-day Treasury bill of ₹100/- (face value) may be issued at say ₹ 98.20, that is, at a discount of say, ₹1.80 and would be redeemed at the face value of ₹100/-. The return to the investors is the difference between the maturity value or the face value (that is 100).
At present, the active T-Bills are 91-days T-Bills, 182-day T-Bills and 364-days T-Bills. The 91-day T-Bills are issued on a weekly auction basis while 182-day T-Bill auction is held on Wednesday preceding Non-reporting Friday and 364-day T-Bill auction on Wednesday preceding the Reporting Friday. In 1997, the Government had also introduced the 14-day intermediate treasury bills. Auctions of T-Bills are conducted by RBI. Treasury Bills were first issued in India in 1917.
Who can buy Treasury Bills?
Individuals, Firms, Trusts, Institutions and banks can purchase T-Bills
Interestingly, FD interest rate of T-BILL is always high
Whereas the 91-day interest rate for SBI in 2022 is 3.9% and the yearly FD interest rate is 5.45%, the Treasury Bill yield as of September 24 is as follows –
364-Day Primary Yield – 6.34%
182-Day Primary Yield – 6.10%
91-Day Primary Yield – 5.63%
Let’s see last year performance of T-Bills –
The India 3 Months Government Bond reached a maximum yield of 8.38% on 3 March 2015 and a minimum yield of 2.7% on 22 May 2020.
The India 6 Months Government Bond reached a maximum yield of 8.3% on 3 March 2015 and a minimum yield of 3.24% on 23 November 2020.
The India 1 Year Government Bond reached a maximum yield of 8.033% (3 March 2015) and a minimum yield of 3.313% (17 November 2020).
Let's see T-Bill Pros & Cons
PROS
Risk-Free – T-Bills are risk-free because they are government-backed and RBI is involved here.
Liquidity – Reselling is allowed in the secondary market. Therefore, investors can convert their holdings into cash during emergencies.
Non-competitive bidding hassle-free – There is no need to pay any type of TDS on redemption here, so investors are also saved from claiming hassle.
CONS
In comparison to the stock market, investors here may earn lower returns. Therefore, if the market is in an upswing, T-Bills may not give you as much return as the stock market can.
Lastly,
Treasury markets have been moving unusually sharply lately, and so has the yield curve. There are plenty of obvious reasons —high inflation, sudden hardening in the US bond yields, Federal Reserve tightening cycle, Rupee’s underperformance against its Asian peers and the Dollar, the increase in commodity prices, oil, and its negative impact on the country’s economic growth.
Yes, Fixed Income securities or the debt market is highly known for a predictable way of payments with less volatility. Which is why most debt participants enjoy the safety that comes with fixed securities. However, recent stats indicate a sudden volatility in the debt or bond market just like other financial markets which may affect the bond market like never before.
Now, this makes T-Bills all the more important for stock market investors.
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