Treasury Note

Treasury Note Definition

Treasury Note is an instrument carrying a fixed rate of interest and duration issued by the government in the market. This note is the most preferred option as it is issued by the government (hence no risk of any default) and also provides a guaranteed amount as return thereupon which helps the investor to plan their expenses accordingly. It suits best for those who are dependent on someone such as senior citizens who need regular funds to live their livelihood.

Features

Treasury-Note

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Source: Treasury Note (wallstreetmojo.com)

Example of Treasury Note

Let take an example.

You can download this Treasury Note Excel Template here – Treasury Note Excel Template

Suppose Mr. A has invested in the government scheme of Treasury note which is as follows:

  • Period of Investment = 2 years
  • Rate of Interest = 12% p.a.
  • Amount invested = $1,000,000
  • Interest due and payable = every 6 months
  • Date of investment = 01.04.2020
  • Date of Maturity = 31.03.2022

Maturity Amount will be paid along with the last interest.

Solution:

First, we have to calculate the half-yearly rate of interest i.e. rate of interest for 6 months, which is as follows:

Treasury Note Example 1

Half-Yearly Rate  = 12% * 6 months / 12 months = 6%.

Amount of interest to be received on investment at the end of every 6 months will be –

Example 1.1

Amount of interest to be received on investment at the end of every 6 months = Amount invested * Rate of interest

Amount of interest to be received on investment at the end of every 6 months = $1,000,000 * 6% = $60,000

Amount to be received at last installment will be –

Example 1.2

Amount to be received at last installment = 1,000,000 + 60,000 = $1,060,000

Here in the above example, Mr. A will receive a four-installment of half-yearly interest of $60,000 and a sum of $1,000,000 at the time of last interest payment as maturity value.

How to Buy Treasury Note?

There are two options to invest in such securities, which are as follows:

  • Investment through Broker, Bank, or any authorized intermediary who will do all the legal formalities on behalf of us and charge some amount as commission or service charges.
  • The other option is to buy on your own by getting registered ourselves on the securities market portal or say by opening a trading account, then by placing a bid for purchase and add the amount of purchase in such trading account through which the exchange will deduct the due sum and allot us the units purchased.

Investing in Treasury Note

As they are the safest option to invest by a fresher or even by an expert the main drawback is it gives us the return which is quite lower as compared to various other investment options available in the market. As the investments are made for such a long span in case the investor has some other better opportunities or is in need of funds they cannot withdraw the funds without paying requisite prematurity charges. The amount invested is not subjected to capital appreciationsCapital AppreciationsCapital appreciation refers to an increase in the market value of assets relative to their purchase price over a specified time period. Stocks, land, buildings, fixed assets, and other types of owned property are examples of assets.read more or losses only the principal amounts are fixed.

Importance of Treasury Note

The fund’s manager who is managing the funds also needs such type of investments which are risk-free and will earn a fixed rate of interest so to fulfill that part of investment this is the most considered option which is chosen by the investors as it is issued by the government itself, so it is also considered as the risk-free safest investments by the investor.

Treasury Note vs Treasury Bill

Advantages

Disadvantages

  • As it provides the investor to quote its own rate of return, on approval it will cost more to the government.
  • The investor has to wait so long to get the invested amount as the duration of such a scheme is too long.
  • It will unnecessarily cost the investor if the investor redeems its investment before maturity.

Conclusion

To conclude, the term ‘Treasury Note’ these are considered as the best option to start your trading or if in the learning phase as the principal amount invested is 100% secured and will also earn a fixed rate of interest. The trading is on the online platform so there is no need for any such intermediary as all of the facilities can be self accessed and used through logging into our account which also includes purchasing and redeeming of investments as well.

Recommended Articles

This has been a guide to what is Treasury Note and its definition. Here we discuss how to buy treasury notes along with their example, features, and importance. You may learn more about financing from the following articles –