Context:
Govt. plan to borrow ₹3.9 trillion through treasury bills in the fourth quarter of the current financial year.
Treasury bills, or T-bills
Treasury bills, or T-bills, are short-term debt instruments issued by the government to raise money for short-term needs.
- How they work
- T-bills are issued at a discounted price and later redeemed at face value at maturity. For example, a 91-day T-bill with a face value of ₹100 may be issued at ₹98.20, and then redeemed at ₹100 when it matures.
- Maturity period
- T-bills have a maximum maturity period of 364 days. They are issued in three tenors: 91 days, 182 days, and 364 days.
- Interest
- T-bills are zero coupon securities, meaning they pay no interest. Instead, the interest is determined by market forces.
- Safety
- T-bills are considered as safest investment because they are backed by the government.
- The funds collected from T-bills are used to meet the government’s short-term needs, which helps to reduce the country’s fiscal deficit.
