Introduction

In today’s unpredictable world, some wealthy investors are looking for safe investments that are liquid and have low taxes. Lately, there has been a shift in their strategy, with many more investors buying government securities with long-term maturities. 

These investors are buying government securities that will mature after 25 to 40 years and would yield them returns of 7.25 - 7.35% annually.

G-secs are one of the safest options for retail investors. They are a safe, high-yield investment for those looking for an upgrade from their current lower-rate fixed deposits.

What is the difference between Treasury bills, notes and bonds?

Treasury bonds, notes and bills are all issued by the government and are together known as government securities (G-sec). 

What do treasury bonds do? They borrow money from the public to fund the government’s financial obligations. 

Let us see the differences between them:

Maturity

The prime difference between Treasury bonds, notes and bills is maturity.

T-bills have a very short term maturity, i.e., less than one year, and are presently issued by RBI in three tenors, 91 days, 182 days, and 364 days. 

Treasury notes India have medium maturity, ranging from 1 to 10 years. 

Conversely, Treasury bonds have a longer maturity, i.e., the maturity can go up to 40 years. 

Interest

Treasury bills in India do not bear interest. They are issued at a discount and upon maturity redeemed at par. 

Conversely, Treasury bonds notes provide coupons (interest) to the investors, but they offer lower interest rates than Treasury bonds as they have medium maturity. 

Treasury bonds interest rates are the highest among the three as the maturity is more, i.e., more risk.

Issuer

The government of India (central government) is the only issuer of T-bills. In comparison, central and state governments and municipal corporations can issue Treasury notes and bonds.

Price Fluctuations

The maturity length of a security may affect how volatile the price is. For short-term securities, with maturity periods of one year or less (T-bills), the price has historically been more stable than for longer-term securities. 

Treasury notes and bonds carry a higher risk than T-bills. Thus, their price fluctuates more. Further, Treasury notes have less risk than Treasury bonds; therefore, their price fluctuates less than bonds.

Risk and Return

Treasury bills, notes and bonds all are backed by the government, but treasury bills risks are low compared to notes and bonds because of their shorter maturity period. Thus, it provides a lower return than Treasury notes and bonds.

Conversely, Treasury bonds yield is the highest among the three as the maturity period is more, carrying the highest risk.

Conclusion

In today’s volatile markets, investors may be looking for a low-risk investment to make their portfolio more stable while still offering safe returns. 

Government securities are considered one of the safest investments.

However, the decision to invest in treasury bonds, notes or bills will depend upon the person’s risk profile and time horizon. Investors with a short time horizon can consider investing in treasury bills and investors with a longer time horizon can invest in treasury notes and bonds.

To know how to buy treasury bonds, visit BondsIndia.