CERTIFICATE OF DEPOSIT

CERTIFICATE OF DEPOSIT:

                                                      Certificate of deposit is a money market instrument. Certificate of deposit issued by commercial banks and financial institutions. The certificates of deposits are negotiable term-deposit accepted by commercial bank from bulk depositors at market related rates. CD are usually issued in demat form or as a usance promissory note.

ELIGIBILITY:

                        All scheduled commercial bank (except RRB and co-operative banks) are eligible to issue certificate of deposit. They can be issued to individual, corporate,trust,funds and association. NRIs can also subscribe to CDs but on non-repatriable basis only. In secondary markets such CDs can’t be endorsed to another NRI.

TERM:

            The CDs issued by commercial bank at a discount to face value for a period from 3 months to one    year.

          The CDs issued by financial institution maturity is minimum 1 year and maximum 3 years.

DENOMINATION:

                                      The CDs can be issued for minimum amount Rs. 500000 to a single investor. There is however, no limit on the total quantum of funds raised through CDs.

TRENSFERABILITY:

                                      CDs issued in physical form are freely transferable by endorsement and delivery. Procedure of transfer of dematted CDs is similar to any other demat securities, the CDs can be negotiated on or after 30 days from the date of issue to the primary investor.

                            In terms of provisions of CD scheme, banks were allowed to issue CDs to their customer’s upto an aggregate amount equivalent to 5 per cent of their aggregate deposit. These instruments are subject to payment of stump duty like the usance promissory notes. Since a CDs is eligible for rediscounting in the money market only after 30 days of holding, the maturity period of CDs available in the market can be anywhere between 1 month to one year. A CD is, therefore, another step in filling the gap between treasury bills/ commercial bills and dated securities. Banks also find this instrument suitable to reward its big size depositors with better rate of return as an incentive.