Treasury Bills (T-Bills): 91, 182, 364 Day Auctions

What Exactly Are Treasury Bills and Why Does the Government Issue Them?

The Government of India, like all governments, does not receive its tax revenues, GST collections, and other receipts in a perfectly smooth stream throughout the year. Spending, on the other hand - salaries, subsidies, infrastructure payments, and debt servicing - tends to be lumpy. In months when outflows exceed inflows, the government needs short-term financing to bridge the gap before the next batch of revenues arrives. Treasury Bills are the primary instrument for this purpose.

T-Bills are therefore classified as money market instruments - securities with an original maturity of one year or less. They form the short end of the sovereign yield curve, sitting below dated government securities (G-Secs) which can have maturities stretching to 40 years or beyond.

The mechanics are elegantly simple. The government announces that it will borrow, say, ₹15,000 crore through the issuance of 91-day T-Bills. Investors - banks, mutual funds, insurance companies, provident funds, foreign portfolio investors (FPIs), and retail participants - submit bids stating the price they are willing to pay (or equivalently, the yield they require) for a face value of ₹100. The RBI, acting as the government's debt manager, allots the bills at a cut-off price derived from the bids received. Winning bidders pay the accepted price and receive their face value - ₹100 per unit - when the bill matures.

Because no coupon is paid, there is no reinvestment risk and no question about what happens to the interest payments. The investor's return is entirely determined by the discount at which the bill was purchased. This simplicity makes T-Bills particularly attractive to risk-averse investors and treasury managers who need certainty of return over a short period.

It is worth distinguishing T-Bills from other central government borrowings. Dated G-Secs are used to finance the fiscal deficit over the medium to long term and pay periodic interest. Cash Management Bills (CMBs) are another category of T-Bills - essentially non-standard maturity T-Bills used by the government to manage very short-term mismatches, sometimes of just a few weeks. CMBs are not issued on a regular schedule and are announced on an as-needed basis. Standard 91, 182, and 364-day T-Bills, by contrast, follow a pre-announced calendar published by RBI at the start of each half-year.

The RBI publishes the T-Bill issuance calendar in advance as part of its Market Borrowing Programme. This predictability is deliberate: it allows market participants to plan their liquidity and ensures a regular, deep market for these instruments. The total amount raised through T-Bills each year runs into tens of thousands of crores of rupees, making this one of the largest and most active segments of India's debt market.

The Three Maturities: 91-Day, 182-Day, and 364-Day T-Bills

India currently issues T-Bills in three standard tenors: 91 days, 182 days, and 364 days. Each serves a slightly different purpose and attracts a slightly different investor base, though all three share the fundamental zero-coupon, discount-to-face-value structure.

91-Day T-Bills: The Shortest and Most Liquid The 91-day T-Bill is the most actively traded of the three. Auctions are held every Wednesday, making them a weekly fixture in the Indian money market. Because of this frequency, the 91-day T-Bill yield is often cited as a reference rate for overnight to three-month borrowing costs in the broader market. Banks, which need to maintain Statutory Liquidity Ratio (SLR) requirements, are among the heaviest buyers. Mutual funds that run liquid and ultra-short-duration schemes also invest heavily in 91-day T-Bills because these instruments can be held to maturity within the scheme's investment horizon. The high frequency of issuance and the significant participation from large institutions mean that the secondary market for 91-day T-Bills on the NDS-OM (Negotiated Dealing System – Order Matching) platform is relatively active, allowing holders to exit before maturity if needed.

182-Day T-Bills: The Middle Tenor The 182-day T-Bill bridges the gap between the very short-term 91-day bill and the near-annual 364-day bill. Auctions are held fortnightly - every alternate Wednesday. This tenor is popular among investors who have a roughly six-month investment horizon and want to capture slightly higher yields than the 91-day instrument, without locking their money away for a full year. Corporate treasury departments that need to park surplus funds for half a year, and money market mutual funds with somewhat longer investment mandates, are typical participants. The 182-day yield also feeds into the pricing of floating-rate products and derivative instruments that reference short-term rates.

364-Day T-Bills: The Longest T-Bill At one year, the 364-day T-Bill is the longest maturity in the T-Bill family and sometimes trades close to the shortest dated G-Secs in terms of yield. These are issued fortnightly on the same alternate-Wednesday schedule as the 182-day bills. The 364-day T-Bill is notable because it serves as an important pricing benchmark: the yield on this instrument is often used as a proxy for the one-year risk-free rate in India. This has direct implications for equity valuation, derivatives pricing, and the computation of risk-adjusted returns for mutual funds. Investors with a horizon of approximately one year who want sovereign credit quality but prefer the simplicity of a zero-coupon instrument (no coupon reinvestment to worry about) often find the 364-day T-Bill attractive.

Yield Relationship Between the Three Tenors In normal market conditions, you would expect yields to increase as maturity lengthens - that is, 364-day yields > 182-day yields > 91-day yields. This positive slope reflects the additional time value and liquidity risk of committing funds for longer. However, the yield curve can flatten or even invert at the short end when the RBI is in a tightening cycle and the market expects rates to fall in the future. Tracking the spread between 91-day and 364-day T-Bill yields is therefore a useful indicator of market expectations about the near-term direction of monetary policy.

How the Auction Process Works: From Announcement to Allotment

T-Bill auctions in India follow a well-defined process governed by RBI guidelines. Understanding this process is essential for anyone who wants to participate directly, whether as an institutional bidder or as a retail investor through the RBI Retail Direct platform.

Step 1 - Auction Announcement Each week, RBI issues a notification (typically on Friday for the following Wednesday auction) announcing the amount to be raised, the tenor or tenors on offer, and the auction date. These notifications are published on RBI's official website and widely reported in the financial press.

Step 2 - Types of Bids T-Bill auctions in India use a price-based auction format. Bids can be submitted in two ways:

Competitive Bids: The bidder specifies both the price (per ₹100 face value) and the quantity they want. For example, a bank might bid ₹98.20 for ₹500 crore of 91-day T-Bills. Competitive bids come from banks, primary dealers, mutual funds, insurance companies, and sophisticated institutional participants. The bidder competes with others and is allotted securities only if their price is at or above the cut-off price set by RBI.

Non-Competitive Bids: Here, the bidder only specifies the quantity, agreeing in advance to accept whatever cut-off price (and yield) emerges from the competitive auction. Non-competitive bids are reserved for retail investors and certain eligible entities. The key advantage is certainty of allotment - a non-competitive bidder is guaranteed to receive the securities (subject to overall limits) without worrying about whether their price was competitive enough. The RBI Retail Direct platform facilitates non-competitive bidding for individual investors.

Step 3 - The Auction and Cut-Off Price On auction day, RBI collects all bids and arranges competitive bids in descending order of price (ascending order of yield). It then determines a cut-off price - the lowest price at which the entire notified amount can be subscribed. All competitive bids at or above the cut-off price are accepted. T-Bill auctions in India follow a multiple-price (discriminatory price) auction format, meaning each successful competitive bidder pays the price they actually bid rather than a uniform clearing price. This is different from a uniform-price (Dutch) auction. Non-competitive bidders pay the weighted average price of accepted competitive bids.

Step 4 - Allotment and Payment Successful bidders are informed of their allotment, and settlement takes place on a T+1 basis - the next business day after the auction. Payment is made at the accepted bid price, and T-Bills are credited to the bidder's Subsidiary General Ledger (SGL) account (for institutions) or their gilt account with a depository (for retail investors). In the secondary market, T-Bills settle on a T+1 basis as well.

Step 5 - Devolvement on Primary Dealers If the notified amount is not fully subscribed in competitive bids, the RBI can devolve the unsold portion onto primary dealers (PDs) at the cut-off yield. This mechanism ensures that auctions do not fail - a critical feature for the government's short-term financing programme. Primary dealers are therefore obligated to support T-Bill auctions and are given special access and privileges in return.

Understanding Uniform vs. Multiple Price Auctions It is worth noting that India uses the multiple-price (or discriminatory) format for T-Bills. This means a bank that bid ₹98.25 pays ₹98.25, while another bank that bid ₹98.20 (and also won) pays ₹98.20. This is different from many government bond markets that use uniform-price formats. The discriminatory format can discourage aggressive bidding because bidders worry about the "winner's curse" - paying more than necessary. Non-competitive bids, which pay the weighted average accepted price, effectively insulate retail investors from this dynamic.

Pricing, Yield, and the Discount Rate: The Mathematics of T-Bills

T-Bills are priced using a discount-to-face-value methodology, and understanding the mathematics helps investors compare T-Bills against other money market instruments and assess whether a given yield is attractive.

Face Value and Issue Price In India, T-Bills are issued in multiples of ₹10,000 (face value). The issue price is always less than the face value. When you buy a 91-day T-Bill at, say, ₹98.25 per ₹100 face value, you are paying ₹98.25 today and receiving ₹100 in 91 days. The ₹1.75 per ₹100 is your absolute return over the holding period.

Discount Yield vs. True Yield There are two common ways to express the return on a T-Bill:

1. Discount Yield (also called Bank Discount Rate): This is calculated on the face value, not the amount invested. Discount Yield = (Discount / Face Value) × (360 / Days to Maturity)

Note: RBI and Indian market convention typically uses 365 days (or actual days) in the denominator for T-Bill yield calculations, not 360. Always check the specific convention being used.

2. Yield to Maturity (or Investment Yield): This is calculated on the actual amount invested (the discounted price), which gives a more accurate picture of the true return. YTM = (Discount / Issue Price) × (365 / Days to Maturity)

Because the issue price is less than the face value, the YTM will always be slightly higher than the discount yield. The difference is small when discount rates are low but can become meaningful at higher rates or longer maturities.

How the Cut-Off Yield Is Quoted In RBI auction results and financial media, T-Bill yields are typically quoted on an annualised basis. For example, if the 91-day T-Bill auction results in a cut-off price of ₹98.25 per ₹100, the annualised yield is approximately: Yield ≈ (1.75 / 98.25) × (365 / 91) ≈ 7.18%

This means an investor in that bill will earn the economic equivalent of about 7.18% per annum, although their actual holding period is only 91 days and they earn ₹1.75 per ₹100 in absolute terms.

Relationship Between Price and Yield Like all fixed-income instruments, T-Bill prices and yields move inversely. If demand for 91-day T-Bills surges (because investors are fleeing risk or because RBI is injecting liquidity), prices rise and yields fall. Conversely, if the RBI is tightening monetary conditions or if inflation expectations rise, yields climb and prices fall.

Accrued Discount in the Secondary Market When a T-Bill is traded in the secondary market before maturity, its price reflects the accrued discount - the portion of the total discount that has "earned" based on the time elapsed. Investors who buy T-Bills in the secondary market need to factor in the remaining time to maturity and the prevailing yield at the time of purchase to determine a fair price. The NDS-OM platform on which wholesale secondary market trades take place shows live bid-ask quotes for T-Bills, making price discovery transparent.

Comparison with Overnight and Short-Term Rates T-Bill yields are closely watched relative to the RBI's policy repo rate, the reverse repo rate (now superseded by the Standing Deposit Facility or SDF rate), and the Marginal Standing Facility (MSF) rate. In normal conditions, 91-day T-Bill yields trade in a band anchored by the SDF rate (the floor) and the MSF rate (the ceiling). Significant deviations from this band signal unusual liquidity conditions in the banking system and are closely monitored by market participants.

Who Invests in T-Bills and Why? The Investor Ecosystem

The T-Bill market in India draws an extraordinarily diverse range of investors, each with distinct motivations. Understanding who buys T-Bills - and why - gives insight into the broader dynamics of Indian money markets.

Scheduled Commercial Banks Banks are by far the largest participants in the T-Bill market. They invest in T-Bills partly to meet their Statutory Liquidity Ratio (SLR) requirements, which mandate that banks hold a certain percentage of their Net Demand and Time Liabilities (NDTL) in approved government securities including T-Bills. Beyond regulatory compliance, banks also use T-Bills as a highly liquid, low-risk avenue to deploy short-term surplus funds. Because T-Bills can be pledged as collateral in repo transactions with the RBI, they provide banks with an additional layer of liquidity management flexibility.

Primary Dealers Primary dealers (PDs) are entities specifically licensed by RBI to participate in government securities markets. They are obligated to support T-Bill auctions (and G-Sec auctions) by committing to bid for a minimum percentage of the notified amount. In return, they enjoy exclusive access to RBI's liquidity facilities. PDs actively trade T-Bills in the secondary market, providing liquidity to other investors. There are around 21 standalone and bank-promoted primary dealers in India.

Mutual Funds Liquid funds, overnight funds, ultra-short-duration funds, and money market funds - all categories of debt mutual funds - invest significant portions of their portfolios in T-Bills. The short maturity, sovereign credit quality, and high liquidity make T-Bills ideal for funds that need to honour frequent redemptions from retail investors. When a large redemption hits a liquid fund, the fund manager needs to liquidate assets quickly; T-Bills, with their deep secondary market and T+1 settlement, are among the easiest instruments to sell.

Insurance Companies and Provident Funds Life insurance companies, general insurers, and the Employees' Provident Fund Organisation (EPFO) invest in T-Bills as part of their mandate to hold a proportion of assets in government securities. For these institutions, the credit safety of T-Bills is paramount - they are managing policyholders' and workers' money and cannot afford credit losses.

Foreign Portfolio Investors (FPIs) FPIs are allowed to invest in T-Bills up to limits set by RBI and SEBI. Foreign investors are attracted to Indian T-Bills when domestic yields are high relative to global peers and when they expect the Indian rupee to remain stable or appreciate. However, FPI flows into T-Bills can be volatile, particularly during periods of global risk-off sentiment or when the US dollar strengthens significantly.

Corporate Treasuries Large corporates with surplus cash use T-Bills to park funds for short periods while earning a competitive risk-free return. Unlike fixed deposits with banks, T-Bills carry no bank credit risk (they are central government obligations). Corporate treasury managers also value the liquidity of T-Bills - if cash is needed suddenly, T-Bills can be sold in the secondary market.

Retail Investors Retail participation in T-Bills was historically limited due to high minimum investment requirements and complex procedures. The launch of the RBI Retail Direct portal has changed this dynamic, allowing individual investors to open gilt accounts and bid in non-competitive auctions for T-Bills with a much lower minimum investment. This is a significant democratisation of a market that was previously inaccessible to most ordinary savers.

How Retail Investors Can Buy T-Bills in India

For many years, investing directly in T-Bills required an SGL (Subsidiary General Ledger) account with RBI - something only available to banks, primary dealers, and large financial institutions. Individual investors had indirect exposure through liquid mutual funds. That changed with successive policy initiatives, and today retail investors have multiple pathways to invest in T-Bills.

RBI Retail Direct The most straightforward route for individual investors is the RBI Retail Direct platform, launched in November 2021. To use it, investors need to: 1. Register on the RBI Retail Direct portal (retaildirect.rbi.org.in) with valid KYC documents (PAN card, Aadhaar, bank account details). 2. Open a Retail Direct Gilt (RDG) account, which is a form of gilt custody account maintained directly with RBI. 3. Once the account is active, bid in non-competitive auctions for T-Bills as and when they are announced. 4. Fund the account from a linked bank account before the auction closes. 5. Receive T-Bills credited to the RDG account upon allotment, and receive the face value (redemption proceeds) in the linked bank account upon maturity.

The non-competitive bidding route means retail investors do not need to determine a price - they simply specify how much face value they want to buy and agree to accept the weighted average price from the competitive auction. This removes the need for complex yield calculations at the time of bidding.

Brokers and Stock Exchange Platform T-Bills can also be bought and sold on stock exchanges (NSE and BSE) in their debt market segments. Some brokers facilitate secondary market purchases of T-Bills. Since T-Bills are dematerialised instruments, they can be held in a regular demat account. However, primary market participation through exchanges is more limited compared to RBI Retail Direct, and secondary market liquidity on exchanges for T-Bills is generally lower than on the institutional NDS-OM platform.

Through Liquid and Money Market Mutual Funds For investors who want exposure to T-Bill returns without the complexity of direct participation, investing in SEBI-regulated liquid funds or money market funds provides indirect exposure. These funds hold significant portions of their portfolios in T-Bills. The investor benefits from professional portfolio management, daily NAV-based liquidity, and the ability to invest with very small amounts. However, this route introduces fund management costs (expense ratio) and is not a direct investment in T-Bills.

Minimum Investment and Lot Size For direct participation through RBI Retail Direct, T-Bills are available in face-value lots of ₹10,000, with a minimum purchase of ₹10,000 and subsequent purchases in multiples of ₹10,000. This is considerably more accessible than the institutional market where lots run into crores.

Secondary Market Exit If an investor who bought T-Bills directly wishes to exit before maturity, the options are somewhat limited compared to listed equities. The primary secondary market for T-Bills is NDS-OM, which is accessible primarily to banks and institutions. Retail investors holding T-Bills through RDG accounts may face challenges in selling before maturity; the practical advice is that T-Bills are best suited for investors who can hold to maturity. Those needing liquidity before maturity are generally better served by liquid mutual funds.

Tax Treatment of T-Bills in India

The tax treatment of T-Bills is an important consideration for investors, and it differs in some respects from the treatment of interest-bearing instruments like fixed deposits or coupon-bearing bonds. Investors should always refer to the latest Finance Act and consult a qualified tax adviser, as rates and provisions can change with each Union Budget.

Nature of Return: Discount vs. Interest Because T-Bills do not pay any coupon, the return arises entirely from the difference between the purchase price (the discounted issue price or secondary market purchase price) and the redemption value (face value). The critical tax question is how this "discount" gain is classified - as "income from other sources" (taxable as interest income) or as capital gains.

For Indian resident individual investors, the general treatment historically has been to classify the discount income as income from other sources, similar to interest income, and tax it at the investor's applicable income tax slab rate. This means T-Bill returns for individuals in the highest tax bracket are taxed at the highest marginal rate.

For Companies and Corporates For companies and other corporate entities, the discount on T-Bills is also typically treated as income and taxed under the applicable heads.

Short-Term Capital Gains: When Does It Apply? There has been some discussion over the years about whether the discount on T-Bills could be treated as short-term capital gains rather than interest income. The income tax treatment of discount on T-Bills can be a nuanced area, and different taxpayers (individuals, HUFs, companies, non-residents) may face different treatments. Because T-Bills mature in less than 36 months, even if characterised as capital assets, the gains would be short-term in nature. Investors should obtain clarity on the applicable treatment for their specific taxpayer category from a tax professional.

Withholding Tax (TDS) Generally, there is no TDS deducted at source on T-Bills held by resident investors when investing through the primary market or when they mature. However, rules can vary depending on the custodian and the platform through which T-Bills are held. Non-resident investors (FPIs) are subject to applicable withholding tax rules on their income from Indian government securities, as per the relevant Double Taxation Avoidance Agreement (DTAA) or domestic tax law, whichever is more favourable.

Comparison with Fixed Deposits For many retail investors, the key tax comparison is between T-Bills and bank fixed deposits. Interest on FDs is taxed as income from other sources at the investor's slab rate, and TDS is deducted if annual interest exceeds the specified threshold. T-Bills, similarly taxed at slab rates, do not offer a tax advantage over FDs from a rate perspective. The distinction lies in credit quality (sovereign vs. bank), liquidity, and the absence of TDS at source in most T-Bill investment scenarios.

Impact of Surcharge and Cess High-income individual investors should factor in applicable surcharge and health and education cess when computing the effective post-tax return on T-Bills. At the highest marginal rate (including surcharge and cess), the post-tax return on T-Bills can be meaningfully lower than the pre-tax yield, which must be compared against alternative options available to that investor.

Note: Tax laws in India are subject to annual revision through the Finance Act. Always refer to the most current tax provisions and consult a qualified chartered accountant or tax adviser before making investment decisions based on tax treatment.

T-Bills and Their Role in India's Money Market and Monetary Policy

Treasury Bills occupy a central position in India's money market ecosystem, and understanding this role illuminates why T-Bill yields matter far beyond the direct returns they offer to investors.

The T-Bill Rate as a Policy Transmission Signal When RBI changes the policy repo rate, the effect on short-term market rates is transmitted partly through the T-Bill market. Banks adjust their bids in T-Bill auctions based on their assessment of prevailing and expected short-term liquidity. If RBI raises the repo rate, the cost of overnight funding increases, and banks demand higher yields on T-Bills to compensate. Within days, T-Bill yields - especially the 91-day variety - typically adjust to reflect the new policy stance. Watching the spread between the policy rate and 91-day T-Bill yields is therefore a useful way to gauge how effectively monetary policy is being transmitted into money markets.

Liquidity Adjustment Facility (LAF) and T-Bills RBI manages banking system liquidity through its Liquidity Adjustment Facility (LAF), under which banks can borrow from RBI (via repo) or park surplus funds with RBI (via the Standing Deposit Facility). T-Bills serve as eligible collateral for repo transactions. When banks pledge T-Bills to borrow from RBI, it creates a tight interlinkage between T-Bill market conditions and the overall liquidity position of the banking system. A shortage of T-Bills can even create collateral scarcity, pushing yields down as investors pay a premium for the convenience of holding these securities.

T-Bills as SLR-Eligible Assets All T-Bills are eligible for inclusion in banks' SLR (Statutory Liquidity Ratio) portfolios. RBI mandates that scheduled commercial banks maintain SLR holdings - currently a set percentage of NDTL - in approved assets, which include cash, gold, and approved securities such as T-Bills and G-Secs. This structural demand from banks provides a reliable, price-insensitive floor of demand at T-Bill auctions, which is part of why auctions rarely fail.

T-Bill Yields in Mutual Fund Benchmarking SEBI's mutual fund categorisation framework requires debt fund schemes to benchmark their performance against appropriate indices. Many liquid fund and money market fund benchmarks are constructed using T-Bill yields (particularly the 91-day T-Bill yield) as a major component. Fund managers who run liquid funds are therefore effectively competing against T-Bill returns - a useful perspective for investors evaluating whether a liquid fund is genuinely adding value after costs.

CMBs: The Flexible Sibling of Standard T-Bills The government sometimes issues Cash Management Bills (CMBs) with non-standard maturities ranging from a few days to a few months. CMBs are used when the government faces an unexpected short-term cash shortfall between regular T-Bill auctions. They are structurally identical to T-Bills but are not issued on a regular schedule. CMBs are also SLR-eligible and are treated on par with T-Bills for most investment purposes. Their yields tend to align closely with those of standard T-Bills of comparable maturity.

T-Bills and the Yield Curve The T-Bill market constitutes the very short end of India's sovereign yield curve. The shape of this short end - whether it is steep, flat, or inverted - conveys important information about the market's expectations regarding future short-term interest rates, which in turn reflect expectations about inflation, RBI policy, and economic growth. A steep short end (with 364-day yields well above 91-day yields) suggests the market expects rates to rise or remain elevated. A flat or inverted short end may signal expectations of an easing cycle.

Global Context and FPI Flows India's T-Bill yields are also influenced by global factors, particularly the level of yields in developed markets (notably US Treasury bills and the Fed Funds rate). When US rates are high, Indian T-Bills need to offer a sufficient premium to attract and retain FPI flows, given the currency risk involved. Periods of significant global volatility - geopolitical events, US Federal Reserve policy surprises, or global risk-off episodes - can cause rapid shifts in T-Bill demand and yields.

Comparing T-Bills with Other Short-Term Investment Options

Retail investors comparing T-Bills with other short-duration investment avenues need to weigh several dimensions: yield, credit quality, liquidity, tax treatment, and minimum investment. Here is how T-Bills stack up against the most common alternatives in India.

T-Bills vs. Bank Fixed Deposits (FDs) Bank FDs are perhaps the most familiar short-term investment for Indian retail investors. Both T-Bills and FDs offer predictable returns over a fixed period. However, there are important differences. FDs carry bank credit risk - if a bank fails, deposits are insured only up to ₹5 lakh per depositor per bank under the DICGC scheme. T-Bills carry no such credit risk. On the other hand, FDs are significantly more liquid for retail investors: premature withdrawal is allowed (usually with a small penalty), whereas T-Bills cannot be easily redeemed before maturity for retail holders. Tax treatment is broadly similar (both taxed at slab rates). T-Bill yields can be slightly higher or lower than comparable FD rates depending on prevailing market conditions - they are not always superior.

T-Bills vs. Liquid Mutual Funds Liquid mutual funds invest predominantly in T-Bills and similar short-term instruments. They offer daily liquidity (redemption processed typically in T+1 or same-day for overnight funds), professional management, and very small minimum investment amounts. However, liquid funds charge an expense ratio (which reduces net yield), have slight credit and interest rate risk depending on their portfolio, and are not direct investments in sovereign securities. For most retail investors, liquid funds offer a more practical route to T-Bill-equivalent returns than direct T-Bill purchases, given the liquidity advantage.

T-Bills vs. Overnight Funds / G-Sec Funds Overnight mutual funds invest in overnight instruments (typically one-day maturity securities). They carry even lower interest rate risk than liquid funds but also offer lower returns. Short-duration G-Sec funds may hold T-Bills alongside longer dated G-Secs, offering slightly higher returns but more interest rate risk. T-Bills sit between these options in the risk-return spectrum.

T-Bills vs. Commercial Paper (CP) and Certificates of Deposit (CD) Commercial Paper is issued by high-rated corporates and Non-Banking Financial Companies (NBFCs), while Certificates of Deposit are issued by banks - both in the money market segment. CPs and CDs typically offer higher yields than T-Bills of comparable maturity to compensate for the additional credit risk (corporates and banks can, in theory, default). Investors who are comfortable with that marginal credit risk might prefer CPs or CDs for the yield premium. However, for those seeking absolute safety, T-Bills remain superior on the credit dimension.

T-Bills vs. Savings Bank Accounts and Sweep FDs Savings bank accounts offer the highest liquidity but typically the lowest returns. Sweep FD facilities (where surplus balance is swept into an FD automatically) offer marginally better returns with good liquidity. T-Bills, while less liquid, offer sovereign credit quality that neither savings accounts nor FDs can match, and at times their yields may compare favourably with these alternatives particularly in high-rate environments.

T-Bills vs. Sovereign Gold Bonds (SGBs) SGBs and T-Bills are both sovereign instruments, but they serve entirely different purposes and have very different risk profiles. SGBs are long-tenure instruments (8 years) linked to gold prices, with an annual interest component and capital gains depending on gold price movements. T-Bills are pure short-term instruments with zero credit and no commodity price risk. They are not really comparable - SGBs are for medium to long-term wealth preservation with gold price exposure, while T-Bills are for short-term capital safety and liquidity management.

Example

Key benefits

How it works

1. 1
   RBI Announces the Auction

   The Reserve Bank of India releases an official notification stating the tenor (91, 182, or 364 days), total amount to be raised, and the auction date, typically a few days in advance.

2. 2
   Investors Submit Bids

   Institutional investors submit competitive bids specifying price and quantity, while retail investors submit non-competitive bids through RBI Retail Direct specifying only the face value they wish to purchase.

3. 3
   RBI Determines the Cut-Off Price

   On auction day, RBI arranges all competitive bids in descending order of price and determines the cut-off price at which the notified amount is fully subscribed. Non-competitive bidders pay the weighted average accepted price.

4. 4
   T+1 Settlement

   On the next business day after the auction, successful bidders pay the accepted price and receive T-Bills credited to their SGL account (institutions) or gilt/RDG account (retail investors).

5. 5
   Secondary Market Trading (Optional)

   Holders can trade T-Bills in the secondary market on NDS-OM (institutions) or on stock exchange debt segments (retail), where prices fluctuate based on prevailing short-term interest rates.

6. 6
   Maturity and Redemption

   On the maturity date (91, 182, or 364 days after issuance), the face value - ₹100 per ₹100 of face value, or ₹10,000 per lot - is automatically credited to the investor's registered bank account.

7. 7
   Rollover Decision

   Once the T-Bill matures, the investor decides whether to reinvest the proceeds in the next available T-Bill auction, shift to another instrument, or deploy the funds as originally planned.

Formula

T-Bill Price = Face Value / (1 + Yield × Days to Maturity / 365)
Annualised Yield = (Discount / Issue Price) × (365 / Days to Maturity)

Key takeaways

Frequently asked questions

Related terms