How RBI uses T - Bills

How RBI uses T - Bills

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Government treasury bills are considered to be one of the safest and most lucrative investment choices available in the market. Treasury bills, also known as T-bills, are issued by the government to raise short-term funds. These bills have enough liquidity and are easily tradable in the market. The government issues treasury bills in three different maturities, namely, 91 days, 182 days, and 364 days. Investors can buy and sell treasury bills in the secondary market, which provides them with the flexibility to exit their investment before maturity.

The liquidity of treasury bills makes them an attractive investment option especially for those investors who need short-term investment alternatives. On the other hand, the Reserve Bank of India (RBI) issues them to help the government in generating funds so that current obligations can be met that are in excess of the yearly revenue generation. They also help in regulating the currency circulation at a given time and minimises the total fiscal deficit within the economy. Treasury Bills are also issued by the RBI as per its Open Market Operations (OMO) strategy so that people’s borrowing/spending habits and the inflation level can be regulated.

The interest rate on treasury bills is determined by the government and is a reflection of the prevailing market conditions. The interest rate on treasury bills is generally lower than other fixed-income securities, such as corporate bonds and debentures. The interest rate on treasury bills is calculated on a discount basis, which means that the investor receives the face value of the bill at maturity, but buys it at a discount.

Investing in Treasury bills also has several advantages. Firstly, they are known to be one of the safest investment options available as these are backed by the government and provide a guaranteed return. Secondly, treasury bills are highly liquid and easily tradable, which provides investors with flexibility. Thirdly, the interest rate on treasury bills is generally lower than other fixed-income securities making them an attractive investment option for risk-averse investors.

Thus, treasury bills are a safe and liquid investment option for investors and they also help the government in its fundraising endeavour. It is an integral and important monetary tool of the RBI for regulating the overall money supply within the economy. Thus, the advantages of investing in treasury bills include safety, liquidity, and a lower interest rate.