What does certificate of deposit or CDs in India mean?

A certificate of deposit or what is popularly known as CDs is nothing but money market instruments that are issued by banks and select Financial institutions in lieu of the money that is deposited.

Who are certificates of deposits issued by?

In India CDs cannot be issued by everyone. They are specifically issued by:

a) Commercial Banks in India

b) Financial institutions like IFCI

What is the minimum size of certificate of deposits that are issued?

Unlike bank deposits that are issued in very nominal amounts, a certificate of deposit should have a minimum amount of Rs 1 lakh. This is the minimum amount and that too by single issuer. It has to be in multiples of Rs 1 lakh thereafter.

Who can invest in certificate of deposits or CDs?

These instruments can be invested by companies, individuals, trusts, funds, banks and associations, etc. Interestingly, RBI norms allow Non-Resident Indians or NRIs to also invest in CDs. However these NRIs cannot repatriate the maturity amount so invested in the certificates of deposits.

Interestingly, these CDs also cannot be endorsed to another NRI.

Maturity period for certificate of deposits

The maturity period depends on the type of investor one is. For CDs issued by banks the maturity period should not be less than 7 days and not more than one year.

For financial institutions the norms are slightly different, in the sense that the CDs should not be issued for a period less than one year and not exceeding three years from the date of issue.

CDs that are not held in the electronic form can be freely transferred by just endorsement and delivery. CDs in demat form can be transferred as per the procedure applicable to other demat securities.

It's also important to note that loans cannot be granted against certificate of deposits. The CDs may be presented for payment by the last holder.

Conclusion:

Certificate of deposits cannot be issued by all and sundry. There are a stipulated set of institutions that can issue the same. Interest rates on these CDs is most likelt to be pretty competitive to interest rates that we get on government securities.

In fact, it could be marginally higher than that depending on the credibility and the market movement of interest rates. Since these are issued by banks and institutions credibility and repayment would not matter too much.

We wish to emphasize that these CDs are not for the common man and are generally applied for by the institutions in the country.

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