Discuss advantage limitations of treasury bill in indian money market
Answers
Advantages of treasury bills
1. It is considered to have little or practically no risk attached. All things being equal, you will definitely get your money back with the promised interest.
2. They are very liquid (i.e. you can easily convert them to cash). Even before the full time period elapses, you can always decide to go for your money at any time. This is however not encouraged, unless you are in very desperate need of cash. Note that if you decide to go for your money (i.e. sell your T’bills) before the time elapses, you will not be paid the full promised amount. In order words, the investment will be discounted.
3. No transaction cost is charged. Unlike other forms of investment where you are charged a fee by the broker who purchases them for you, brokers do not charge you for purchasing T'Bills for you.
Disadvantage of treasury bills
1.The interest rates which are paid on T’bills are almost always lower than the other investment options on the market. This however makes sense because one of the key principles of investment is “the higher the risk, the higher the expected return”.