A Certificate of Deposit, often called a CD, is a financial tool issued by banks and financial institutions in India. These certificates are subject to regulation by the Reserve Bank of India (RBI) and serve as time deposits, resembling fixed deposits. CDs are unsecured and negotiable instruments within the money market, akin to promissory notes.
The introduction of the CD-Certificate of Deposit market was a government initiative aimed at expanding the array of money market instruments available and offering greater flexibility to investors seeking short-term investment options for their surplus funds. This move allows individuals, corporations, and various entities to manage their finances more effectively.
Features of CD-Certificate of Deposit
Certificates of Deposit, commonly known as CDs, offer attractive interest rates compared to savings and money market accounts. In return, you agree to keep your funds deposited for a specified period.
CDs are a secure and conservative investment option compared to stocks and bonds. They provide a guaranteed rate of return without the volatility associated with other investments, although growth potential is lower.
Various CD-Certificate of Deposit options are available at nearly every bank, credit union, and brokerage firm. Shopping around can lead to significantly higher returns, as top nationally available CD rates often outperform industry averages by three to five times for each term. Additionally, some options allow for early withdrawal if you are in a financial emergency or need to change your plans.
CDs can be issued in dematerialized (demat) form or as physical use promissory notes.
The Reserve Bank of India (RBI) has implemented changes in the regulations governing Certificates of Deposit (CDs). These changes include an increase in the minimum denomination for CDs to Rs. 5 lakh, with subsequent investments permitted in multiples of Rs. 5 lakh. Previously, banks had the flexibility to issue CDs with a minimum denomination of Rs. 1 lakh.
Scheduled commercial banks and approved Financial Institutions (FIs) have the authority to issue CDs within the limits set by the RBI. The minimum deposit accepted from a single subscriber must be at least INR 1 Lakh, with the option to invest in multiples of 1 Lakh.
For bank-issued CDs, the duration should be no less than 7 days and no more than one year from the issue date. FIs, conversely, can issue CDs with durations of at least 1 year and at most 3 years from the date of issue.
FAQ.
Who can Issue a Certificate of Deposit?
All scheduled commercial banks, with the exception of Regional Rural Banks (RRBs) and Local Area Banks (LABs), are eligible. Additionally, select All India Financial Institutions authorized by the Reserve Bank of India (RBI) have the privilege to issue Certificates of Deposit (CDs).
Minimum amount for Certificate of Deposit?
The minimum deposit requirement for a Certificate of Deposit (CD) is set at Rs. 1 Lakh, and larger sums must be in increments of Rs. 1 Lakh.
CDs can be transferred ?
When Certificates of Deposit (CDs) are issued in physical form, like usance promissory notes, they can be transferred easily through endorsement and delivery. However, if they are issued in Demat form, their transfer follows the same procedures as other Demat securities.
