What exactly are Treasury Bills?
Treasury bills are promissory notes issued by the central government for a fixed period extending upto one year as a tool for raising short term funds from the equity trading market. They are usually issued for a discount for a maturity period of 91/182/364 days. TBs are an ideal form of short term investment for banks and financial institutions as they are eligible as securities for SLR (Statutory Liquidity Ratio) purpose. They can be purchased by any person resident in India including individuals, firms, companies, corporate bodies, banks and financial institutions.
These Bills usually do not carry any interest rate and are issued by the government at discounted value. This means that a ‘500 bill may be issued at a discount to investors for a price of ‘410. After the maturity date is over, the government will pay ‘500 to the holder of the bill. The difference between the par value at which the bills are redeemed and the face value at which the T-Bill was procured is the net gain to the investor.
Role in the Money Market:
1) A fiscal role as an instrument for raising funds for governments short term needs.
2) A monetary role as an instrument with RBI to influence liquidity in the equity trading market.
These T-Bills are issued by RBI at regular intervals and issued at a discount to face value. They very effectively serve as effective short-term borrowing instruments for the Government. Even investors benefit from the same as they can park their surplus funds in these instruments and considerably reduce their market risk.
1) One can purchase these shares for a minimum face value of ‘1 lac and there is no fixed ceiling on the maximum amount of treasury bills that can be purchased from the money market. The rate of interest is determined by market, based on demand for and supply of funds in the money market. Moreover these treasury bills are highly liquid instruments giving offering attractive yields to investors
2) Treasury Bills as an asset class have been approved for SLR (Statutory Liquidity Ratio) purposes and DFHI (Discount and Finance House of India) is the stock market leader in such instruments. The bills are the only security in which the repurchase option (Repo) or ready forward transaction are permitted. This is the most important instrument for hedging against volatility in call loan market.
So after analyzing these points, you can yourself see that TBs are all time favorite for those who want to play big in stock market. Since the minimum investment amount is ‘ 1 Lac therefore, it becomes a niche investment option too. But even big players sometimes loose in stock market, therefore its the perfect investment option for them too.