Treasury Bill

Treasury Bills (T-Bills) are short-term debt instruments issued by the Reserve Bank of India on behalf of the Government of India. They are available in three tenors: 91 days, 182 days, and 364 days. T-Bills carry zero default risk (sovereign guarantee) and serve as the benchmark risk-free rate for the Indian financial system.

T-Bills are issued at a discount to face value and redeemed at par. For example, a 91-day T-Bill with a face value of INR 100 might be issued at INR 98.25. At maturity, you receive INR 100, and the INR 1.75 difference is your return. The implied annualised yield in this case would be approximately 7.1% — this yield is widely used as the "risk-free rate" in the Sharpe Ratio calculation and other financial models.

The RBI conducts T-Bill auctions weekly (91-day every Wednesday, 182 and 364-day on alternate Wednesdays). Retail investors can participate through the RBI Retail Direct scheme (launched 2021), which allows direct bidding in government securities auctions through an online portal. Alternatively, T-Bills can be purchased through banks, primary dealers, or via the secondary market on NDS-OM (Negotiated Dealing System - Order Matching).

T-Bills are particularly useful for parking surplus funds with zero credit risk and high liquidity. They are exempt from stamp duty, and the income is taxed as interest income (not capital gains) at the investor's marginal tax rate. For investors in higher tax brackets, the post-tax yield may be lower than tax-free alternatives like PPF, but the ultra-short tenure and liquidity make T-Bills ideal for temporary fund parking.

In portfolio construction, T-Bills serve as the risk-free asset for asset allocation. During periods of market uncertainty or elevated valuations, increasing T-Bill allocation (reducing equity exposure) is a conservative move. Liquid funds and overnight mutual funds invest heavily in T-Bills and similar instruments, passing the near-risk-free yield to their investors with daily liquidity.