Treasury Bills (T-Bills)

How it works

T-bills are the government's way of borrowing for the short term. They carry no coupon — instead they are issued at a discount and redeemed at par. Buy a 91-day bill with ₹100 face value for, say, ₹98.50, and you receive ₹100 at maturity; that ₹1.50 is your interest. There are three standard tenures: 91, 182 and 364 days.

The RBI auctions T-bills regularly on behalf of the government. Because they carry sovereign backing and mature quickly, they are considered virtually free of credit and interest-rate risk — the benchmark "risk-free" rupee asset against which other returns are measured.

In India

Retail investors can buy T-bills through the RBI Retail Direct platform or via banks and brokers, in minimum lots of ₹10,000 and multiples thereof. They also underpin everyday products: liquid funds, money market funds and overnight funds hold large slugs of T-bills, so even an ordinary SIP investor owns them indirectly through these schemes.

T-bill yields are watched closely as a gauge of short-term interest rates and reflect prevailing RBI liquidity conditions and the repo rate. When the RBI cuts rates, T-bill yields generally drift lower too.

Why it matters

T-bills are where you park money you cannot afford to lose and may need soon — an emergency buffer or a near-term goal a few months away. They offer far better predictability than market-linked products and much less risk than long-duration bonds, with the full faith of the sovereign behind repayment.

Common mistakes

Don't expect FD-beating returns — T-bills prioritise safety and liquidity, not yield, so the return is modest. Also note that the discount gain is taxed as interest income at your slab rate, so the post-tax return is what really counts. For larger holdings, a low-cost liquid or money market fund can be more convenient and tax-efficient than buying bills directly.