T-Bills Advantages & Disadvantages

T-Bills Advantages & Disadvantages

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T-bills or Treasury bills are short-term instruments of debt issued by the government to finance its short-term obligations. They are considered to be one of the safest investment options available in the market. These are minimum investment options and as per the Reserve Bank of India (RBI), a short-term T-bill can be procured by any investor by investing a minimum of Rs. 25,000. Higher investment can also be done by through multiples of Rs. 25,000.

Treasury bills are basically issued in three different maturities, namely, 91 days, 182 days, and 364 days. Treasury bills are issued at a discounted rate to their face value and provide a guaranteed return to the investor at maturity. These are treated by the RBI as zero-coupon securities or G-sec bills and they do not produce any interest on overall deposits. However, investors can make capital gains through this investment instrument and, as a result they are sold at a discounted price in the market. On redemption, investors can get the full par value thus allowing them to make substantial profits on overall investment.

Non-competitive bidding is amongst the other Treasury bill benefits as the RBI auctions them every week through the process so that small-scale and retail investors participate in them without having to mention the price or yield rate. Thus, it helps in increasing the participation of amateur investors in government securities market that helps to create healthy cash flows within the capital market.

Despite all their benefits there are also Treasury bills disadvantages. Firstly, the returns on treasury bills are generally lower than other fixed-income securities, such as corporate bonds and debentures. Secondly, treasury bills are not exempt from taxation, which means that the investor may have to pay taxes on their returns. Thirdly, treasury bills have a short-term maturity, which may not be suitable for investors who are looking for long-term investment options.

Thus, Treasury bills are short-term instruments of debt to finance the government’s short-term obligations. They provide a guaranteed return to the investor and the benefits of investing in them include liquidity and a lower interest rate. However, there are disadvantages like lower returns, taxation, and a short-term maturity. Hence, investors should carefully weigh the pros and cons of investing in them before taking an investment decision.