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.
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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