Why are T-bills issued at a discount?

T-bills are short-term government securities that are issued at a discount to their face value. This means investors purchase them for a lower price than their stated redemption value, and upon maturity, they receive the full face value. But why does the government issue T-bills this way instead of offering periodic interest payments like traditional bonds?

Zero-Coupon Nature: T-bills are classified as zero-coupon securities, meaning they do not pay periodic interest like other bonds. Instead, investors benefit from the difference between the discounted purchase price and the full face value at maturity.

Liquidity & Short Maturity: T-bills are typically issued for short durations, such as 91 days, 182 days, or 364 days. The discounted pricing allows for easier buying and selling in the secondary market, enhancing liquidity for investors who may wish to exit before maturity.

Simplicity & Convenience: By issuing T-bills at a discount, the government simplifies the investment process. Investors do not need to track interest payments and factors affecting interests, making them an attractive, hassle-free option for both individual and institutional investors.

If you’re looking to invest in T-bills through Share India, you can check out the form here.