Treasury Bills ( t- bills)

Treasury Bills :
Treasury Bills are money market instruments to finance the short term requirements of the Government of India. These are discounted securities and thus are issued at a discount to face value. The return to the investor is the difference between the maturity value and issue price.

Types Of Treasury Bills:

There are different types of Treasury bills based on the maturity period and utility of the issuance like, ad-hoc Treasury bills, 3 months, 6 months and 12months Treasury bills etc. In India, at present, the Treasury Bills are issued for the following tenors 91-days, 182-days and 364-days Treasury bills.

Benefits Of Investment In Treasury Bills :

	No tax deducted at source
	Zero default risk being sovereign paper
	Highly liquid money market instrument
	Better returns especially in the short term
	Transparency
	Simplified settlement
	High degree of tradeability and active secondary market facilitates meeting unplanned fund requirements.

 Features:

   Form

The treasury bills are issued in the form of promissory note in physical form or by credit to Subsidiary General Ledger (SGL) account or Gilt account in dematerialised form.

Minimum Amount Of Bids Bids for treasury bills are to be made for a minimum amount of Rs 25000/- only and in multiples thereof.

   Eligibility

All entities registered in India like banks, financial institutions, Primary Dealers, firms, companies, corporate bodies, partnership firms, institutions, mutual funds, Foreign Institutional Investors, State Governments, Provident Funds, trusts, research organisations, Nepal Rashtra bank and even individuals are eligible to bid and purchase Treasury bills.

   Repayment

The treasury bills are repaid at par on the expiry of their tenor at the office of the Reserve Bank of India, Mumbai.

   Availability

All the treasury Bills are highly liquid instruments available both in the primary and secondary market.

   Day Count

For treasury bills the day count is taken as 365 days for a year.

   Yield Calculation

The yield of a Treasury Bill is calculated as per the following formula:

	(100-P)*365*100
Y =	------------------
	P*D

Wherein	Y = discounted yield
	P= Price
	D= Days to maturity

   Example:

A cooperative bank wishes to buy 91 Days Treasury Bill Maturing on Dec. 6, 2002 on Oct. 12, 2002. The rate quoted by seller is Rs. 99.1489 per Rs. 100 face values. The YTM can be calculated as following:

The days to maturity of Treasury bill are 55 (October – 20 days, November – 30 days and December – 5 days)

YTM = (100-99.1489) x 365 x 100/(99.1489*55) = 5.70%

Similarly if the YTM is quoted by the seller price can be calculated by inputting the price in above formula.

Primary Market :
In the primary market, treasury bills are issued by auction technique.

CALENDAR OF AUCTION FOR TREASURY BILLS

Treasury Bill	Day of auction	Day of payment
91 day	Every Wednesday	Following Friday
182 day	Wednesday preceding thenon-Reporting Friday	Following Friday
364 day	Wednesday preceding the reporting Friday	Following Friday

 Salient Features Of The Auction Technique

	The auction of treasury bills is done only at Reserve Bank of India, Mumbai.
	Bids are submitted in terms of price per Rs 100. For example, a bid for 91-day Treasury bill auction could be for Rs 97.50.
	Auction committee of Reserve Bank of India decides the cut-off price and results are announced on the same day.
	Bids above the cut-off price receive full allotment; bids at cut-off price may receive full or partial allotment and bids below the cut-off price are rejected.

Types Of Auctions

There are two types of auction for treasury bills:

	Multiple Price Based or French Auction: Under this method, all bids equal to or above the cut-off price are accepted. However, the bidder has to obtain the treasury bills at the price quoted by him.
	Uniform Price Based or Dutch auction: Under this system, all the bids equal to or above the cut-off price are accepted at the cut- off level. However, unlike the Multiple Price based method, the bidder obtains the treasury bills at the cut-off price and not the price quoted by him.

Secondary Market & Palyers:

The major participants in the secondary market are scheduled banks, financial Institutions, Primary dealers, mutual funds, insurance companies and corporate treasuries. Other entities like cooperative and regional rural banks, educational and religious trusts etc. have also begun investing their short term funds in treasury bills.

   Advantages :

	Market related yields
	Transparency in operations as the transactions would be put through Reserve Bank of India’s SGL or Client’s Gilt account only
	Two way quotes offered by primary dealers for purchase and sale of treasury bills.
	Certainty in terms of availability, entry & exit. Source : www.caclubindia.com