Q.What is a Treasury Bill?

A treasury bill is an instrument of short-term borrowing by the Government of India, maturing in less than one year. Because it carries no separate interest coupon, it is also called a Zero Coupon Bond.

It is issued by the RBI on behalf of the Central Government in the form of a promissory note. A treasury bill is highly liquid, carries an assured yield and negligible default risk, and is issued at a discount (below face value) and repaid at par — the difference being the interest earned.

A treasury bill (T-bill) is basically an instrument of short-term borrowing by the Government of India, maturing in less than one year. It is also known as a Zero Coupon Bond because it pays no periodic interest.

• It is issued by the Reserve Bank of India on behalf of the Central Government to meet its short-term requirement of funds, in the form of a promissory note.
• It is highly liquid, with an assured yield and a negligible risk of default.
• It is issued at a price lower than its face value and repaid at par; the difference between the issue price and the redemption value is the interest, called the discount.
• Treasury bills are available for a minimum amount of ₹25,000 and in multiples thereof.

For example, a 91-day treasury bill of face value ₹1,00,000 may be bought for ₹96,000; on maturity the investor receives ₹1,00,000, earning ₹4,000 as interest.