When I manage short-term money, I want three things in order: safety, clarity, and control over dates. Cash management bills (CMBs) help me tick all three. They are issued by the Reserve Bank of India for the Union Government and are designed to cover very short gaps in the government’s cash flows. For me as an investor, they function like a secure parking bay for surplus funds when the holding period is only a few weeks.
What I’m actually buying
CMBs are close cousins of Treasury Bills, only shorter in tenor. There is no coupon. I buy at a discount and receive face value at maturity; the difference is my return. If I purchase at ₹99.40 and get back ₹100, that 60 paise is the income for the period I held the bill. Because the issuer is the sovereign, credit risk is minimal, which is why CMBs sit near the top of my cash ladder.
Features that matter in practice
- Ultra-short maturity: Typical maturities run for a few weeks. This lets me match an investment precisely to a known cash outflow—tax payment next month, a vendor settlement, or payroll.
- Auction discovery: Pricing happens through RBI auctions. The market sets the yield, so I get a transparent, real-time sense of where short-term money is trading.
- Demat and tradability: I hold CMBs in demat and can sell in the secondary market if I need to exit earlier, subject to available liquidity.
- Discounted structure: No interest credits to track. The simplicity helps my reconciliations and keeps paperwork light.
Why I use them
Capital preservation comes first. With sovereign backing, I am comfortable parking treasury cash without worrying about credit events. Low duration risk follows. Since the tenor is brief, price swings from interest-rate moves are contained. Then there is cash flow alignment. I can choose a maturity that returns funds exactly when I need them, rather than leaving money idle in a current account. Finally, opportunity cost. CMB yields often compare well with other short instruments, so my cash keeps working without stretching the timeline.
The fine print I do not ignore
Every short-term tool has trade-offs. Reinvestment risk is the big one. When a bill matures, the next auction could clear at a lower yield. Liquidity can vary in the secondary market, so I prefer to plan on holding to maturity unless I’m sure I may need an early exit. On taxation, the gain from the discount is taxable as per the rules that apply to my profile and holding intent; I confirm the treatment with a tax professional instead of relying on thumb rules.
How I put CMBs to work
I build a simple ladder. Several cash management bills mature week after week, releasing money in a steady rhythm. This reduces reinvestment risk and gives me predictable inflows. If the parking need extends to a quarter, I compare CMB yields with 91-day Treasury Bills and choose what best fits the duration and yield I want. For execution, I prefer regulated platforms that allow me to buy and hold government securities in demat with clear statements and settlement.
Where they fit in the bigger picture
In the wider universe of Bonds in Indian Market, CMBs are a specialist tool. They are not meant for long-term wealth creation. They are meant for precision—keeping cash safe for a few weeks, earning a market-linked return, and coming back on the exact date I choose. Used thoughtfully, they bring order to short-term money management and let me sleep well while my liquidity remains productive.
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