Treasury Bills are money market instruments to finance the short term requirements of the Government of India. These are discounted securities and thus are issued at a discount to face value. The return to the investor is the difference between the maturity value and issue price.
Types Of Treasury Bills There are different types of Treasury bills based on the maturity period and utility of the issuance like, ad-hoc Treasury bills, 3 months, 6 months and 12months Treasury bills etc. In India, at present, the Treasury Bills are issued for the following tenor’s 91-days, 182-days and 364-days Treasury bills.
Benefits Of Investment In Treasury Bills
| No tax deducted at source|
| Zero default risk being sovereign paper|
| Highly liquid money market instrument|
| Better returns especially in the short term|
| Simplified settlement|
| High degree of tradeability and active secondary market facilitates meeting unplanned fund requirements.|
The treasury bills are issued in the form of promissory note in physical form or by credit to Subsidiary General Ledger (SGL) account or Gilt account in dematerialised form. Minimum Amount Of Bids Bids for treasury bills are to be made for a minimum amount of Rs 25000/- only and in multiples thereof. Eligibility:
All entities registered in India like banks, financial institutions, Primary Dealers, firms, companies, corporate bodies, partnership firms, institutions, mutual funds, Foreign Institutional Investors, State Governments, Provident Funds, trusts, research organisations, Nepal Rashtra bank and even individuals are eligible to bid and purchase Treasury bills. Repayment
The treasury bills are repaid at par on the expiry of their tenor at the office of the Reserve Bank of India, Mumbai. Availability
All the treasury Bills are highly liquid instruments available both in the primary and secondary market. Day Count
For treasury bills the day count is taken as 365 days for a year. Yield Calculation
The yield of a Treasury Bill is calculated as per the following formula: | (100-P)*365*100|
Y =| ------------------|
Wherein | Y = discounted yield|
| P= Price|
| D= Days to maturity|
A cooperative bank wishes to buy 91 Days Treasury Bill Maturing on Dec. 6, 2002 on Oct. 12, 2002. The rate quoted by seller is Rs. 99.1489 per Rs. 100 face values. The YTM can be calculated as following: The days to maturity of Treasury bill are 55 (October – 20 days, November – 30 days and December – 5 days) YTM = (100-99.1489) x 365 x 100/(99.1489*55) = 5.70%
Similarly if the YTM is quoted by the seller price can be calculated by inputting the price in above formula.
In the primary market, treasury bills are issued by auction technique. CALENDAR OF AUCTION FOR TREASURY BILLS
Treasury Bill| Day of auction| Day of payment|
91 day| Every Wednesday| Following Friday|
182 day| Wednesday preceding thenon-Reporting Friday| Following Friday| 364 day| Wednesday preceding the reporting Friday| Following Friday|
Salient Features of The Auction Technique
| The auction of treasury bills is done only at Reserve Bank of India, Mumbai.| | Bids are submitted in terms of price per Rs 100. For example, a bid for 91-day Treasury bill auction could be for Rs 97.50.| | Auction committee of Reserve Bank of India decides the cut-off price and results are announced on the same day.| | Bids above the cut-off price receive full allotment; bids at cut-off price may receive full or partial allotment and bids below the cut-off price are rejected.| Types Of Auctions
There are two types of auction for treasury bills:
| Multiple Price Based or French Auction: Under this method, all bids equal to or above the cut-off price are accepted. However, the bidder has to obtain the treasury bills at the...