Are Treasury Bills Better than Mutual Funds?

Are Treasury Bills Better than Mutual Funds? Investments are a very crucial part of every person’s life. In today’s world, inflation has hit very hard. With so many expenses daily, you have to concentrate on your savings to protect your family’s future.

Do savings alone help in building wealth? No. Savings alone are insufficient for your children’s education, buying or building a home, and managing your family’s medical expenses.

To build wealth, you must invest your savings in different investment tools like mutual funds, stocks, treasury bills, etc.

By making investments, you will make your money work for you and help you earn good returns. It will eventually help in building good wealth for yourself and your family.

So what do you think is the best investment option, Mutual Funds or Treasury Bills? Are you confused?

In this blog, all your confusion around the above question will be cleared. You will understand in detail about mutual funds and treasury bills. You will also know which one is the best option.

What are Treasury Bills?

Treasury Bills are financial investment instruments directly issued by the Government of India.

It is issued in the form of a promissory note with an assurance of guaranteed repayment in the future.

Treasury bills are financial instruments that the Government uses to borrow money for short-term requirements and to manage the overall fiscal deficit of the country.

The Government primarily gives Treasury Bills on a short-term basis. The maximum tenure of a Treasury bill is 364 days. They are provided to people with zero interest rates.

The Government Treasury Bills can be given to people at a discount to the face value of the security. The returns from the Treasury bill can be the exact face value.

For example, buy a 91-day treasury bill worth Rs.100/- at Rs. 98.50/-. After the maturity of your treasury bill, you will receive Rs. 100/-, the exact face value of the invoice.

What are Mutual Funds?

Mutual Funds are the most popular forms of investments that the Reserve Bank of India governs.

Both private and government financial bodies manage mutual funds. All mutual funds have a Fund Manager who pools money from different investors to invest in securities.

Investors can enjoy returns for their money in a particular mutual fund. It is a very feasible method of investment for people. However, mutual funds are not directly government-aided. Hence, there can be some risks associated with mutual funds.

You can earn more returns by investing in Mutual Funds than in Treasury bills and enjoy long-term investment facilities with mutual funds.

Types of Treasury Bills

Treasury bills are divided into different types based on their tenure. They are:

  • 14-day Treasury Bill
  • 91-day Treasury Bill
  • 182-day Treasury Bill
  • 364-day Treasury Bill

The holding period of all Treasury bill types remains the same. However, face values and discount rates of treasury bills change periodically. It all depends on the funding requirements and monetary policy of the RBI, along with the total bids placed.

Types of Mutual Funds

Mutual Funds can be of numerous types depending on many factors. The major types of mutual funds popular in India are:

  • Money Market Funds.
  • Bond Funds.
  • Stock Funds.
  • Target Date Funds.

Treasury Bills v/s Mutual Funds

Let’s find out the significant differences between Mutual Funds and Treasury Bills.

1.    Risk

  • Treasury bills are one of the risk-free investment instruments available in India.
  • Since the government of India manages treasury bills, you can be completely assured about your money.
  • Whereas mutual funds are subject to market risks since its managed by a fund manager who is working for a private financial institution.

2. Duration

  • The duration of Treasury Bills is significantly less.
  • The maximum tenure of Treasury bills is 364 days.
  • You can invest your money in mutual funds for a long time to get more returns.
  • Mutual Funds tenure can be up to 15-20 years.

3. Returns

  • Since Treasury bills are short-term investments, the returns are significantly less.
  • Mutual funds, when kept for a longer duration, can give you good returns.
  • Short-term mutual funds also give lesser returns.

4. Top-up Investments

  • If you want to put extra money into the same investment, it is a top-up investment.
  • The top-up investments cannot be made for Treasury Bills.
  • Whatever amount you invest in a Treasury bill at the beginning, you cannot increase or decrease it with the tenure.
  • However, the same does not apply to mutual funds.
  • You can top-up your mutual fund’s investment anytime with any amount.

5. Commissions

  • Treasury Bills are purely government-aided; hence they do not charge any extra fees or commissions.
  • Since the government borrows money from the people through treasury bills to fulfill a short-term requirement, they do not charge extra interest or fees in any form.
  • Private financial bodies direct mutual Funds; hence they charge nominal fees or charges that apply to specific funds.

There are varied differences between Treasury bills and mutual funds. In some aspects mutual funds may seem better. In some other ways, treasury bills can be a safer investment option. Both investment tools have their share of pros and cons. It would be best if you weighed them well to suit your investment goals.

Are Treasury Bills better than Mutual Funds? The answer can be yes or no, depending on the investor’s choice. If you are looking for investments that have no risk, are government-aided, and are okay with fewer returns, then Treasury Bills are the best option.

However, if you are a person who wants to make good returns from your investment, if you are ok with engaging your savings to reap long-term benefits, and if you are okay with taking a risk, then you can opt for mutual funds. Both types of investment instruments are suitable; the choice lies in the hands of the investors.

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