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Types of treasury bills 1. Ad hoc Treasury bills .Discontinued from 1997-1998. Replaced by ways and means advance. 2. Regular Treasury Bills Issued by the government to meet budgetary expenditure' There are treasury bills with different maturity periods. For instance: 14 days T-bills, 182 days T-bills, 364 days T-bills
Commercial Papers .CPs are unsecured debt instruments (CPs are not generally backed by collateral It can be issued in dematerialised form or as promissory notes (on investor's insistence . .CPs were issued in India in 1990 to enable short-term funding requirements Issuer of CPs should have high quality debt ratings. These issuers are rated by credit rating agencies like CRISILICRA,CARE, FITCH Ratings
Issued by Al-India financial institutions ii. Primary dealers (PDs) iii. Corporates Corporates should have a net w Corporates should have a net worth of minimum 4 crore. All corporates cannot issue CPs. Should be able to meet the eligibility criteria set by RBI.
CPs are issued in multiples of 5 lakhs and its multiples thereof. ultiples of 5 lakhs and its multipl Maturity period of Commercial papers is: Minimum duration-7 davs Maximum duration- 1 year Following entities can invest in CPs a. Individuals including NRIs. b. Banking compani c. Corporate bodies registered in India d. FIls (as per the guidelines of SEBI)
. For example: For example: "If a firm intends to raise short-term funds from the money market to meet an immediate need, then it can issue CPs. If the firm needs Rs. 10 crores and it offers its investors Rs. 10.1 crores in face value of the CP in return for Rs.10 crores in cash (given the prevailing interest rates in the market). Then, there would be a Rs.0.1crore interest payment upon maturity of the CP in exchange for Rs.10 crores in cash."
Certificate of Deposits (CDs) CDs are negotiable instruments' CDs are"negotiable instruments". Issued in dematerialised form or as a Usance Promissory Note, It is given against funds deposited at a bank or other eligible financial institution for a specified time period. Issued by financial institutions and commercial banks (excluding RRBs and Local Area banks).
Maturity period of CDs Banks 3 months -1 year Financial institutions- Between-3 years. -I year Financial institutions- Beween -3 years Minimum amount of a CD should be Rs.1 lakh, i.e., 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."
There is no lock-in period for CDs. . There is no lock-in period for CDs Financial institutions and banks cannot grant loans against CDs. ''All OTC trades in CDs shall be reported within 15 minutes of the trade on the FIMMDA reporting platform." CDs in physical form can be easily transferred through endorsement Stamp duty is applicable on CD's . Yield is slightly higher than T-Bills.
For example: One can easily purchase a CD for Rs. 100000, for a time period of one-year, where it pays 5% semi-annually. After six months, an interest of Rs. 2500 (Rs. 1,00000 x 5 % x 0.5 years) can be earned."