What is the difference between T-bills & Government Bonds?
G-Secs is a collective term for these two type of securities: maturities less than 1 year are called T-bills and those more than one year are called bonds.
There are three T-bills variants and they vary based on the maturity period. They are 91 days, 182 days, and 364 days.
T-bills do not carry an interest component, in fact, this is one of the biggest difference between T-bills and Bonds. T-bills are issued at a discount to their true (PAR) value and upon expiry, its redeemed at its true value.
Ex- Assume the true value (also called the Par value), is Rs.100. This T-bill is issued to you at a discount to its par value, Say Rs.97. After 91 days, you will get back Rs.100 and therefore you make a return of Rs.3.
Bonds differ from T-bills on 2 counts. Bonds have long-dated maturities and they pay interest twice a year.
Read this chapter on Varsity which explains about G-secs in detail.