Certificate of Deposit(CD)

Certificate of Deposit (CD)

Certificate of Deposit (CD)

Certificate of Deposit (CD) implies an unsecured, securities industry instrument, issued by the financial organisation| or financial institution, either in demat type or as a usance promissory note, at a reduction to face price at market rates, against the quantity deposited by a person, for a stipulated time.

In finer terms, certificate of deposit is a fixed interest bearing term deposit, that incorporates a fixed maturity. It limits the access to the funds, till the lock-in amount of the investment, i.e. the investor cannot withdraw funds, on demand.
 

Salient Features of Certificate of Deposit (CD):

Eligibility: All scheduled depository financial institution, not together with regional rural bank and cooperative bank, area unit eligible to issue the certificate of deposit. It will be issued by the bank to people, companies, trust, funds, associations, etc. On the non-repatriable basis, it will be issued to Non-Resident Indians (NRIs) additionally.

Certificate of Deposit (CD) Maturity period: The CDs area unit issued by the bank at a reduction to face price, at market-related rates, starting from three months to at least one year. once a financial organization problems CD, the minimum term is one year and most 3 years. additionally to the present, no grace amount is allowed for the reimbursement of CD.

Denomination: The minimum issue size of a certificate of deposit is Rs. 5,00,000 to to a single investor. Moreover, when the certificate of deposit exceeds Rs. 5,00,000, it should be in multiples of Rs. 1,00,000. Add to that; there is no ceiling on the total amount of funds raised through it.

Transferability: Certificate of deposit existing in physical type will be freely transferred by means of endorsement and delivery. CDs in dematerialised type will be transferred, as per the method of different dematerialised securities.

Reserve requirement: Banks area unit needed to stay CRR and SLR on the problem value of the certificate of deposit.

Format: Banks and monetary establishments will issue CD in dematerialised type solely. though the capitalist, at their discretion, will look for a certificate in ancient type. Moreover, it attracts stamp tax.

Certificate of Deposit (CD) Discount: Certificate of Deposit is issued at a reduction to face price, determined by the market, which may be side or bottom discount. The effective rate of discount is larger than the quoted rate just in case of side discount. On the contrary, in bottom discount, the CDs yield the quoted rate on the termination of the required term.

Banks issue certificate of deposit once the deposit growth is relatively slow, and credit demand is high, and there’s a modification trend within the decision rate. These area unit high-cost liabilities, and banks take recourse of CD’s only there exist stiff liquidity conditions within the market.

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