About Certificate of Deposit (CD):
- It is a fixed-income financial tool that is governed by the Reserve Bank of India (RBI) and is issued in a dematerialized form.
- It is a type of agreement made between the depositors and the banks, wherein the bank pays an interest on your investment.
- It is a short-term investment that comes with fixed investment amounts and maturity tenure ranging between 1-3 years.
- Features of CD:
- A CD in India can be issued for a minimum deposit of Rs. 1 lakh or in subsequent multiples of it.
- Eligibility Criteria:
- CDs are issued by the Scheduled Commercial Banks (SCBs) and All-India Financial Institutions.
- The Cooperative Banks and the Regional Rural Banks (RRBs) are not eligible for issuing a CD.
- It is issued to individuals, corporations, companies, and funds, among others.
- CDs could also be issued to NRIs but on a non-repatriable basis only.
- Maturity Period:
- The maturity period of a CD can range between 7 days and 1 year when issued by commercial banks.
- However, for other financial institutions, the maturity period ranges from 1 year to 3 years.
- CDs are offered at discount rates or floating rates, depending on the banks’ requirements.
- Interest Rates: A CD offers a higher interest rate than savings accounts or some other fixed-term financial products.
- CDs in dematerialised form can be transferred through endorsement or delivery, similar to dematerialised securities. This feature enhances the liquidity and ease of transactions for CDs.
- Unlike some other financial instruments, there is no lock-in period for a CD. This flexibility allows investors to access their funds or reinvest after the agreed-upon term without restrictions.
- Since CDs do not have any lock-in period, CDs cannot be used as collateral, and banks can’t buy back their own CDs before maturity.
- Banks have to maintain the statutory liquidity ratio and cash reserve ratio on the price of a CD.
- A CD is fully taxable under the Income Tax Act.
- A CD cannot be publicly traded.
