DEFINITION:A treasury bill is a promissory note or a finance bill issued by the government under discount for a specific period stated therein.

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

It refers to the market where treasury bills are bought and sold.

1.Treasury bills are issued only by the RBI on the behalf of the government.

2.Form:

The treasury bills are issued in the form of promissory note in physical form

3.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.

3.Repayment:

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

4. Availability:

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

5. Day Count:

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

7.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

In India, there are two types of treasury billls

A. Ordinary or regular treasury bills

B. Ad hoc known as “ad hocs”.

A. Ordinary or regular treasury bills

They are issued to the public and other financial institution for meeting the short term financial requirement of the central government.

these bills are freely marketable and they can be bought and sold at any time.

B. Ad hoc known as “ad hocs”.

Ad hoc treasury bills are issued in the favour of the RBI only.

they are not sold through tenders or auctions. they are purchased by RBI only.

They are not marketable in India but holders of these bills can sell them back to the RBI.ocs

Ad hocs serve the government in the following ways:

1.They replenish cash balance of the central government. Just like state government get advance from the RBI, the central government raise through these ad hocs.

2.They also provide an investment medium for investing the temporary surpluses of state government, semi-government depatment and forien central bank.

On the basis of periodicity, treasury bills may be classified into 3 they are:-

1.91 days treasury bills:-these bills are issued at the fixed discount rate of 4% as well as through auction.91 days treasury bills can be rediscounted with the RBI at any time after 14 days of their purchase.

2.182 days treasury bills

3.365 days treasury bills:-these bills do not carry any fixed rate. the discount rate on these bills are quoted in auction by the participants and accepted by the authorities

1. No tax deducted at source

2. Zero default risk being sovereign

paper

3. Highly liquid money market

instrument

4. Better returns especially in the short

term

5. Transparency

6. Simplified settlement

7. High degree of tradability and active

secondary market facilitates meeting

unplanned fund requirements.