T-bills return calculation
T-bills come in three variants based on maturity: 91 days, 182 days, and 364 days. Unlike bonds, T-bills don't pay interest. Instead, you buy them at a discount to their face value and receive the full face value at maturity.
T-bill example
Consider a 91-day T-bill with a face value (par value) of ₹100:
- You buy it at ₹97 (discount price)
- After 91 days, you receive ₹100
- Your profit: ₹3
This works like buying a stock at ₹97 and selling it at ₹100 after 91 days, except your return is guaranteed.
T-bill yield formula
You calculate yield on an annualised basis to compare all investments fairly:
Yield = [Discount Value]/[Bond Price] × [365/number of days to maturity]
Using our example: = [3/97] × [365/91] = 0.0309 × 4.010989 = 12.4052%
This T-bill offers 12.4052% annualised return, though you only hold it for 91 days.
Typical 91-day yields range from 6-7.5%. Higher yields provide better returns. All yields are annualised.
Bonds return calculation
Bonds differ from T-bills in two ways: they have longer maturities and pay interest twice yearly.
Understanding bond symbols
Each bond has a unique symbol containing key information. For example: 740GS2035A
- 7.40% = Annualised interest rate
- GS = Government Securities
- 2035 = Maturity year
- A = Fresh issue (internal NSE classification)
This bond pays 7.4% annual interest until 2035. You receive 3.7% every six months, plus your principal at maturity.
Bond pricing and investment
Every bond has a par value (typically ₹100). You can invest:
- At discount: Below par (₹98, ₹97)
- At par: Face value (₹100)
- At premium: Above par (₹101, ₹102)
Your investment price depends on the auction process.
Bond calculation example
Consider investing in 700GS2020 (7% interest, maturing in 2020):
- Investment price: ₹98.4 per bond
- Number of bonds: 150
- Total investment: 150 × 98.4 = ₹14,760
Cash flow breakdown:
| Time Period | Interest | Cash Flow | Remarks |
|---|---|---|---|
| 0–6 months | 3.5% | ₹525 | Half-yearly interest |
| 6–12 months | 3.5% | ₹525 | Half-yearly interest |
| 1–1.5 years | 3.5% | ₹525 | Half-yearly interest |
| 1.5–2 years | 3.5% | ₹525 | Half-yearly interest |
| At maturity | Principal | ₹15,000 | Additional ₹240 gain |
- Interest payments: ₹525 × 4 = ₹2,100
- Principal repayment: ₹15,000
- Total received: ₹17,100
- Approximate yield: 7.88%
For detailed yield calculation methods, visit the RBI's official website or refer to the Government securities module on Varsity.