Short term interest rates have gone up but the one to two year fixed deposits (FD) are yet to catch up. Despite a hike last week, State Bank of India one year FD pays 6.1 percent. 364 days Treasury bill issued by Reserve Bank of India offers 6.94 percent yield.

Since treasury bills are issued by RBI they carry little credit risk. Individual investors can participate in the auction through RBI Retail Direct to invest in Treasury bills and government securities. If the investor wants a more tax efficient investment alternative with assured liquidity then she may choose mutual fund schemes that invest in short term instruments, after carefully analysing the portfolio.