Use SIP to smooth rate volatility, ensure disciplined investing

The Reserve Bank of India (RBI) has introduced the systematic investment plan (SIP) feature for investing in treasury bills (T-Bills) via its Retail Direct platform.

- HIMALI PATEL

Retail investors must understand the suitability of this instrument for their financial goals before venturing into it.

Understanding T-Bills

T-Bills are short-term government borrowing instruments.

"T-Bills have tenures like 91, 182, and 364 days. Dated government securities (G-Secs) are issued by the RBI for longer-term borrowing, with tenures ranging from one year to 50 years," says Udbhav Shah, proprietor, DravyaSiddhi, an Association of Mutual Funds in India-registered mutual fund and strategic investment fund (SIF) distributor.

They are zero-coupon instruments. "They are sold at a discount to their face value. The face value (100) is paid upon maturity," says Shah.

Why invest in them?

Being government backed, they carry no default risk. "Their short tenures mean interest-rate movements have a lower impact on their prices," says Suresh Darak, founder, Bondbazaar.

He adds that T-Bill yields, at 5-5.5 per cent, are higher than those offered by current and savings bank accounts.