When friends ask me for the definition of treasury bills, I start with a real moment. I once needed a place to park funds for my child’s school fees due in four months. I wanted safety, quick access, and a fair return. That search led me to Treasury Bills—short-term Government of India securities issued at a discount and redeemed at full face value. No coupons, no surprises; the gain is simply the difference between what I pay today and what I receive on maturity.
How a T-Bill actually works
Think of a ₹100 note payable in 91, 182, or 364 days. I might buy that note for ₹97–₹99, depending on market yields. On maturity, the government pays me ₹100. If I paid ₹97.80 for a 182-day bill, I earn ₹2.20 over that period. Annualised yields are quoted so I can compare with bank FDs or liquid funds. Because the issuer is the sovereign, default risk is considered negligible, which is why T-Bills sit at the safest end of my fixed-income choices.
Why I use them
Three reasons keep me coming back. First, capital protection. When I cannot afford a loss, I lean on T-Bills. Second, liquidity. Regular RBI auctions and active secondary markets let me enter easily and, if needed, exit before maturity. Third, simplicity. There are only three tenors, the pricing is transparent, and settlement is clear. For short goals—a tax payment due next quarter, an upcoming down payment, or a planned expense—T-Bills are my steady parking bay.
Risks to respect
Even safe instruments have trade-offs. The biggest one here is reinvestment risk: when a bill matures, prevailing yields may be lower. If I sell before maturity, there is interest-rate risk—prices can move a little with rate expectations, although short duration limits the swings. Finally, the gain is treated as interest income and taxed at my slab rate, so I plan post-tax returns, not just headline yields.
Where they fit in a portfolio
I use T-Bills to build my emergency buffer and to keep cash productive without locking it for years. A simple ladder—buying 91-, 182-, and 364-day bills in rotation—keeps money rolling back every few months, which helps with cash flows. If I expect policy rates to remain firm, the 364-day bill lets me capture those higher short-term yields with limited price volatility. When rates are falling, I accept that later reinvestments may earn less, and I adjust the ladder accordingly.
Access has become easy
Bidding is possible through the non-competitive route; settlement happens in my demat account. Most regulated platforms now allow me to invest in bonds online alongside T-Bills and other government securities with clear displays of price, yield, and maturity. That digital access matters. It shortens the distance between reading an auction calendar and placing a live bid, and it reduces the friction that once kept small investors out.
If you were looking for the definition of treasury bills and a practical way to use them, here is my one-line summary: T-Bills are short-term, sovereign-backed promises that turn today’s discount into tomorrow’s certainty. Used thoughtfully—for goals measured in months, not years—they anchor the low-risk end of a portfolio and keep idle cash working without stretching for risk.
