Treasury Bills: A Safe Investment Offering Higher Returns than FDs

November 18, 2024 By: Naresh Saini

For those looking for a safe investment option with better returns than Fixed Deposits (FDs), Treasury Bills (T-Bills) are an excellent alternative. These government-issued securities are short-term investment tools that provide fixed returns with minimal risk, making them ideal for conservative investors.

Issued by the Reserve Bank of India (RBI), T-Bills cater to individual and institutional investors alike, offering a secure way to invest while supporting government borrowing.

Key Features of Treasury Bills

• Low Risk: T-Bills are backed by the Government of India, ensuring there is no risk of losing money.
• Higher Returns: The returns on T-Bills are generally higher than those offered by traditional FDs.
• Short-Term Investment: These securities mature within a year, making them ideal for short-term financial goals.
• Fixed Returns: Investors know the exact returns at the time of purchase, ensuring transparency.

Types of Treasury Bills

The RBI issues T-Bills in three durations, each with its unique maturity period:

1. 91-Day T-Bill: Matures in three months, suitable for ultra-short-term needs.
2. 182-Day T-Bill: Offers a slightly longer investment horizon of six months.
3. 364-Day T-Bill: Best for those seeking returns within one year.

How Treasury Bills Work

T-Bills are issued at a discounted price from their face value. Investors purchase them at a lower price, and on maturity, they receive the full face value. The difference between the two amounts represents the investor’s profit.

For example:

• If the face value of a 91-day T-Bill is ₹100, and you buy it at ₹97, you’ll earn a profit of ₹3 upon maturity.

How to Invest in Treasury Bills

1. Eligibility

Previously, T-Bills were limited to banks and financial institutions. Today, retail investors can also participate through platforms like:

• RBI Retail Direct Scheme
• Stock Exchanges (BSE/NSE)

2. Requirements

• A Demat Account is necessary to hold T-Bills.
• A minimum investment of ₹25,000 is required.

3. Process

• Step 1: Register with a broker or directly on the RBI platform.
• Step 2: Participate in RBI’s weekly auctions.
• Step 3: Upon purchase, the T-Bills will be credited to your Demat account.

4. Maturity and Returns

When the T-Bill matures, the government automatically credits the face value to your bank account linked to your Demat account.

Benefits of Investing in Treasury Bills

1. Safe Haven for Money: Since T-Bills are government-backed, there’s no risk of default.
2. Short Investment Tenure: Ideal for investors who don’t want to lock their money for long.
3. Liquidity: T-Bills can be easily traded on stock exchanges, ensuring quick access to cash.
4. Better Than FDs: T-Bills often offer higher returns compared to fixed deposits, making them a smarter choice for short-term goals.
5. Transparency: Returns are fixed and known in advance, reducing investment uncertainty.

Tax Implications of Treasury Bills

The returns earned from T-Bills are considered short-term capital gains, which means:

• Taxable Income: Gains are added to your total income and taxed as per your income tax slab.
• No TDS: Unlike FDs, TDS is not deducted, but you’ll need to declare the earnings in your Income Tax Return (ITR).

Why Consider Treasury Bills Over FDs?

Feature	Treasury Bills	Fixed Deposits (FDs)
Risk Level	Low	Low
Issuer	Government of India	Banks
Returns	Higher than FDs	Fixed, but generally lower
Liquidity	Tradable on stock exchanges	Premature withdrawal penalty
Tenure	Up to 1 year	Flexible (7 days to 10 years)
Taxation	Short-term capital gains	Taxed as per slab; TDS applies

Why Are T-Bills Gaining Popularity?

1. Retail Access: The RBI has made T-Bills more accessible to individual investors, encouraging diversification beyond FDs.
2. Market-Linked Returns: Unlike FDs, where rates are fixed by banks, T-Bills benefit from competitive bidding in auctions, often resulting in higher yields.
3. Economic Stability: By investing in T-Bills, investors indirectly support government initiatives and infrastructure projects.

Who Should Invest in Treasury Bills?

T-Bills are ideal for:

• Risk-Averse Investors: Those seeking guaranteed returns with minimal risk.
• Short-Term Planners: Individuals with financial goals within 1 year.
• Tax-Savvy Individuals: While taxed as per slabs, T-Bills still offer competitive returns.