Treasury bills (T-Bills), notes and bonds are marketable securities that the U.S. government sells in order to pay off maturing debt and to raise the cash needed to run the federal government. When you buy one of these securities, you are lending your money to the government of the U.S.  (applicable in India also)

Understanding T-bills

T-bills are short-term obligations issued with a term of one year or less, and because they are sold at a discount from face value, they do not pay interest before maturity. The interest is the difference between the purchase price and the price paid either at maturity (face value) or the price of the bill if sold prior to maturity.
For example, an investor who purchases a T-bill at a discount price of $97 will receive the $100 face value at maturity. The $3 difference represents the interest return on the security.
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The Differences Between Bills, Notes And Bonds

Treasury Notes and Bonds

Treasury notes and bonds, on the other hand, are securities that have stated interest rates that are paid semi-annually until maturity. What makes notes and bonds different are the terms to maturity. Notes are issued in one-, three-, five-, seven- and 10-year terms. Conversely, bonds are long-term investments with terms of more than 10 years.
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Governments need money to operate and, just like people and businesses, they will borrow money when needed. In this lesson, you'll learn about government securities.

What is a Government Security?

A government security is a bond or other type of debt obligation that is issued by a government with a promise of repayment upon the security's maturity date. Government securities are usually considered low-risk investments because they are backed by the taxing power of a government. In fact, investment in U.S. treasury securities is probably the safest investment that can be made.

Why Are They Issued?

Government securities are usually issued for two different reasons. The primary reason that most government securities are issued is to raise funds for government expenditures. The federal government issues treasury securities to cover shortfalls (deficits) in its annual budget. Additionally, cities will often issue bonds for construction of schools, libraries, stadiums, and other public infrastructure programs.
A central bank of a country, such as the U.S. Federal Reserve, will sell debt securities for another reason: to control the supply of money in an economy. If the Federal Reserve wants to slow the growth rate of money in the economy, it will sell government securities. This means that it is sucking up dollars from the economy and replacing them with government securities, which results in a slowing of the rate of growth in the money supply. Slowing the rate of money's growth in an economy will help keep inflation under control.

Types of Government Securities

There are many types of government securities. Let's take a look at them and see how they differ.
Treasury bills are short-term securities issued by the federal government. Their maturity periods range from days to 52 weeks. These securities are sold at a discount rate and will be paid at face value, which is how the investors make their money.
Treasury notes are government securities with maturity periods longer than treasury bills. Their maturity periods can be two, three, four, five, seven, and ten years. Interest is paid every six months.
Treasury bonds are long-term investments with a maturity period of 30 years. Interest is paid every six months.

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