A certificate of deposit is a money market instrument that was introduced in the year 1989 as a guarantee against deposit funds. The certificate is issued for a predetermined period. CDs are excellent short-term investments that offer assured returns.
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The Certificate of Deposit can only be issued in the non-tangible or electronic form. However, there is a provision for the physical copy as well according to the Depositories Act, 1996. The banks or financial institutions themselves cannot issue the Certificate of Deposit in physical form.
The Financial Markets Department, Reserve Bank of India, Mumbai must be informed on the same. The Certificate of Deposit must be signed by two or more authorized signatories on issuance.
The Certificate of Deposit can only be issued for a minimum deposit of Rs 1 Lakh. There is no ceiling on the maximum amount. The deposit, however, can only be made in multiples of Rs 1 Lakh. The maturity period varies depending on the investor type. For Certificate of Deposit issued by the bank, the maturity period is a minimum of 7 days and a maximum of a year. For Certificate of Deposit issued by financial institutions, the maturity period is a minimum of 1 year and a maximum of 3 years.
Certificates of Deposit are transferable when present in the physical form. They can be transferred if held in the Demat form as per the Demat securities guidelines.
The Certificate of Deposit can be issued at a discounted price on face value. Issuing a Certificate of Deposit on a floating rate basis as per the market rate is also a common trend.
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Certificate of Deposit comes with several benefits like:
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Certificates of Deposit are available in various formats and with different returns. Following are some of the points that must be kept in mind before buying a CD:
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