NIFTY T-Bills Indices

Equity indices are famous. Bond indices are not, and the workbook says so plainly: investors know little about the growing number of bond market indices, because they are not as widely published as their equity counterparts.

That is a pity, because they do the same job. They give a benchmark.

The NIFTY T-Bills Indices are the shortest end of that family. A Treasury bill is government paper that matures in a year or less. It is the standard stand-in for a risk-free return.

There are five indices by maturity — 30 day, 60 day, 91 day, 182 day and 1 year — and one more that tracks all maturities together.

The constituent is not chosen by committee. For the 91 day, 182 day and 1 year indices it is simply the most recently issued bill of that tenor. For the 30 day and 60 day indices it is the bill whose remaining life is closest to 30 or 60 days.

And because new bills are issued constantly, the indices are rebuilt constantly too.

Section 10.6.1 covers sovereign securities indices. The T-Bills family sits there, immediately after the NIFTY G-Sec Indices.

The six indices.

The methodology. For the 91 Day, 182 Day and 1 Year T-bill indices, the most recently issued T-bill is the constituent. For the 30 Day and 60 Day indices, the security with residual maturity closest to 30 days and 60 days respectively is the constituent.

How often they are rebuilt — and the workbook gives two answers. The passage first says the indices are reconstituted on a weekly basis, and then says the index is rebalanced and reconstituted on every T-bill auction. Both statements are in the same section. Learn both, and if asked for one, note that the auction-based statement is the more specific of the two. Do not pick one and discard the other.

A second internal discrepancy worth knowing. The text says there are 5 distinct maturity based indices representing 30-day, 60-day, 91-day, 182-day and 1-year maturities. Two sentences later it says the NIFTY All Maturity T-Bill Index represents the aggregated performance of 3 distinct maturity based T-Bill indices. Five in one sentence, three in the next. The list of named indices in Table 10.4 supports five, so five is the safer answer for a counting question, but the workbook prints both figures and a candidate should expect either to appear as an option.

Set against the G-Sec family, which shares the section. NIFTY G-Sec Indices represent Government of India bonds across 6 distinct Macaulay duration buckets — ultra-short (3 to 6 months), low (6 to 12 months), short (1 to 3 years), medium (3 to 4 years), medium to long (4 to 7 years) and long (over 7 years). Their methodology differs from the T-bill one at every point:

Where the rest of the family goes. Section 10.6.2 covers corporate bond indices — NIFTY AAA, AA+, AA, AA− and Banking & PSU Bond Indices across 6 duration buckets with up to 14 issuers each, and NIFTY A Bond Indices across 2 duration buckets with an issuance size above Rs 50 crore. Section 10.6.3 covers high yield, and 10.6.4 global bond indices. NIFTY Fixed Income Aggregate Indices consist of 13 indices spanning government securities, corporate bonds by rating, commercial papers, certificates of deposit, T-bills and the overnight rate.

Krishna Absolute Return Fund, a Category III AIF, holds Rs 120 crore in Treasury bills as its liquidity buffer and needs to report performance against a benchmark.

Step 1 — pick the right index. Its bills have a weighted average residual maturity of about 85 days.

The 91 Day index is the answer, and its constituent is simply the most recently issued 91-day bill.

Step 2 — see why reconstitution matters. On a Wednesday the RBI auctions a fresh 91-day bill at a cut-off yield of 6.55%. The previous constituent, issued five weeks earlier at 6.95%, now has 56 days left to run.

The index switches to the new bill at that auction. The fund's own portfolio does not — it still holds the older, higher-yielding paper until maturity. For a few weeks the fund therefore out-yields its benchmark, purely because the benchmark refreshes and the portfolio does not.

Step 3 — the contrast with the 30 day index. If the fund were benchmarked to the NIFTY 30 Day T-Bill Index, the constituent would not be the newest bill at all. It would be whichever outstanding bill has a residual maturity closest to 30 days — most likely a 91-day bill issued about two months ago. Two indices in the same family, two completely different selection rules.

Step 4 — use it as the risk-free rate. Chapter 9 computes the Sharpe and Treynor ratios against a 364-day T-bill rate of 5.60% in its worked example, which is the rate the NIFTY 1 Year T-Bill Index tracks. If Krishna's expected return is 15.75% with a standard deviation of 2.15%, the Sharpe ratio is (15.75 − 5.60) ÷ 2.15 = 4.72 — the workbook's own figure for its long-only fund.

Chapter 10 (Introduction to Indices and Benchmarking), section 10.6.1 on the Government Securities Index, carries Table 10.4 and the Nifty T-Bill Index Methodology. It is examined alongside the NIFTY G-Sec Indices that precede it, because their methodologies differ point by point.

Expect a counting question — how many maturity segments the T-Bill indices cover — and a methodology question on how the constituent is chosen: most recently issued for 91 day, 182 day and 1 year, closest residual maturity for 30 day and 60 day. Expect the reconstitution frequency, where the workbook offers both weekly and at every T-bill auction. And expect the paired G-Sec facts as distractors: 6 duration buckets, up to 3 liquid bonds per bucket, an outstanding amount above Rs 5,000 crore, weights by amount outstanding, monthly reconstitution.

• The workbook gives two reconstitution frequencies for the same family — weekly, and at every T-bill auction. Both sentences are in section 10.6.1. Carry both; do not assume one is a misprint.
• It also gives two counts. One sentence says 5 distinct maturity based indices, the next says the All Maturity index aggregates 3 of them. Table 10.4 names five, so five is the safer answer, but expect three to appear as an option.
• Different selection rules inside one family. Most recently issued for 91, 182 and 1 year; closest residual maturity for 30 and 60 day.
• Six indices, five maturity buckets. The sixth is the All Maturity index.
• T-Bills indices are reconstituted far more often than the G-Sec indices, which are monthly.
• The Rs 5,000 crore outstanding-amount filter and the up-to-3-bonds rule belong to the G-Sec indices, not to the T-Bill indices. So does weighting by amount outstanding.
• Rs 50 crore and 14 issuers belong to the corporate bond indices in section 10.6.2. Three sets of numbers in three consecutive sections, and they migrate in candidates' memories.