Summary of this article
RBI will soon allow SIP in T-Bills via its Retail Direct platform.
T-Bills are short-term money market instruments issued by Government of India
The RBI launched its Retail Direct platform in November 2021.
The Reserve Bank of India (RBI) has announced plans to allow systematic investment plans (SIPs) in Treasury Bills (T-bills) through its Retail Direct platform, similar to how SIPs in mutual funds work. This step aims to increase retail participation in government securities.
Announcing the decision during the monetary policy meeting on August 6, RBI Governor Sanjay Malhotra said, “We are expanding the functionality of the Retail Direct platform, which will enable retail investors to invest in Treasury Bills through systematic investment plans.”
What Are Treasury Bills
T-bills are short-term money market instruments issued by the Government of India, which essentially acts as a promise to repay the invested amount in full on a specified future date. T-bills do not pay interest like fixed deposits. Instead, these securities are issued by the Government at a price lower than their face value. For example, a T-Bill with a face value of Rs 1,000 might be issued at Rs 960. When it matures, the investor will get the full Rs 1,000 back, generating a return of Rs 40 for investors.
These securities are typically issued with a short tenure of 14, 91, 182, and 364 days. According to current RBI rules, investors have to invest at least Rs 25,000 to buy a short-term Treasury Bill, and any amount beyond that has to be invested in multiples of Rs 25,000. Details on how SIPs will work for shorter-tenure T-bills are yet to be announced.
What is RBI’s Retail Direct Platform
The RBI launched its Retail Direct platform in November 2021. Through this platform, investors can open their gilt accounts with the central bank and buy government securities directly in primary auctions and trade them in the secondary market.
So far, small investors could only buy T-bills occasionally, whenever they chose to place a bid. Now, with the new SIP option, they can invest small amounts regularly and automatically in these safe, short-term government securities, similar to how mutual fund SIPs work.
“To enable investors to systematically plan their investments, an auto-bidding facility for Treasury bills (T-bills), covering both investment and re-investment options, has been enabled in Retail Direct,” RBI said in its press release. The central bank said the new feature allows investors to set up automatic bids for T-bills in upcoming primary auctions.
What It Means For Investors
This will help investors seeking a safe, low-risk option to invest regularly in government-backed securities that will provide a fixed return.
Suresh Darak, Founder, Bondbazaar, says, “In many situations, investors look to park their money safely for a short period of time. They have a definite time frame in mind, such as three months or six months, when a large payment is due to come up, such as a car purchase or vacation. Since the expense outlay and timeframe is fixed, investors cannot speculate with this money and look towards safe avenues where their capital is 100 per cent protected. In such situations, T-Bills provide an incredible opportunity to earn fixed returns through bonds backed by the Government.”
Darak says that with the introduction of the SIP facility in T-Bills, this avenue becomes even more appealing as investors can allocate a portion of their portfolio that they can keep re-investing in T-Bills, as older ones keep maturing. “They can create a continuous cycle, wherein the investor buys T-bills for the first few months, and then repeatedly re-invests the principal as they mature. The investor will keep earning regular safe income, and can ‘withdraw’ the principal anytime by stopping the SIP and selling the bonds,” he says.
