Certificate of Deposit (CD) is a negotiable money market instrument and issued in dematerialised form or as a Usance Promissory Note against funds deposited at a bank or other eligible financial institution for a specified time period. It was introduced in India in 1989.
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Guidelines for issue of CDs are presently governed by various directives issued by the Reserve Bank of India (RBI)
CDs can be issued by:
The CDs are issued at discount price on face value. So return is the difference between issue price and face value.
CDs can be issued to:
Foreign portfolio investors (FPIs) are not permitted to invest in CDs
The maturity period of CDs is different for banks and FIs.
Banks / FIs cannot grant loans against CDs. Furthermore, they cannot buy-back their own CDs before maturity.
Banks / FIs should issue CDs only in dematerialised form. However, according to the Depositories Act, 1996, investors have the option to seek certificate in physical form.
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