Understanding the Interest Rate for Treasury Bills Investments

What is the rate of interest investing in Treasury bills?

The interest rate for Treasury Bills (T-Bills) isn't pre-set; instead, they are issued at a discount to their face value and mature at par. The interest earned is the difference between the face value and the issue price.

The maturity period of T-Bills in India varies from 14 to 364 days, with availability based on the tenure. For detailed information, please refer to this article.

For example, imagine acquiring a 91-day T-Bill with a face value of ₹100 at ₹99.50. Upon maturity, your interest will be ₹0.50, paid as a lump sum. The interest rate for this transaction is 0.503% (calculated as 0.50100/99.5). Thus, the effective interest rate over the 91-day period is 0.503%, equating to an annual rate of 2.012% (0.503364/91).

Note: The cited interest rate pertains specifically to a 91-day term.

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