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Certificate of Deposit is an important money market instrument which is important for all the Bank and Insurance Exams.
Definition of Certificate of Deposit
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. [su_note note_color="#fbf8be" text_color="#0d0505" radius="5"] Note: Usance Promissory Note or Demand Promissory Note has to be paid immediately on demand.[/su_note] India introduced Certificates of Deposit (CDs) in 1989 to increase the range of money market instruments in the country and thereby give investors greater flexibility in terms of utilization of their short-term funds.Features of Certificate of Deposit
Certificate of Deposit (CDs) can be issued by
- scheduled commercial banks {excluding Regional Rural Banks and Local Area Banks};
- select All-India Financial Institutions (FIs) that have been permitted by RBI to raise short-term resources within the umbrella limit fixed by RBI.
Minimum Amount of Certificate of Deposit
Minimum amount of a CD should be Rs.1 lakh. So, the minimum deposit that could be accepted from a single subscriber should not be less than Rs.1 lakh, and in multiples of Rs. 1 lakh thereafter.CDs can be issued to
- individuals,
- corporations,
- companies (including banks and PDs),
- trusts, funds, associations, etc.
Maturity Period of Certificate of Deposit
- The maturity period of CDs issued by banks should not be less than 7 days and not more than one year, from the date of issue.
- Also, FIs can issue CDs for a period not less than 1 year and not exceeding 3 years from the date of issue.
- There is no lock-in period for the CDs.