Short answer

T-bills and bonds require different calculation methods, as these two types of government securities work in distinct ways.

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:

Total returns:

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 Arrow learning resources.