What is commercial paper in India?

In India, commercial paper is a short-term money market instrument that enables corporations, banks, and financial institutions to raise funds to meet their short-term requirements. It represents an unsecured promissory note that is issued in a dematerialized form to investors for a specified tenure.

What is the purpose of commercial paper?

The purpose of commercial paper is to provide companies with a flexible and efficient means of raising short-term funds to finance their working capital, bridge temporary cash flow gaps, or meet other immediate funding needs.

Who can issue commercial paper in India?

Companies, including non-banking financial companies (NBFCs), public financial institutions, primary dealers, and scheduled banks with a minimum net worth of ₹4 crores, are eligible to issue commercial paper.

What is the tenure of commercial paper?

The tenure of commercial paper in India can range from a minimum of 7 days to a maximum of 1 year. However, most commercial papers have a maturity period of 90 days or less.

How is commercial paper issued?

Commercial paper is issued through a primary dealer or an issuing and paying agent, who facilitates the issuance on behalf of the borrowing entity. These agents also serve as intermediaries between issuers and investors.

What are the features of commercial paper?

Commercial paper is typically issued at a discount to face value, offering a higher yield to investors. It is an unsecured instrument, meaning it does not require any collateral. Commercial papers can be issued in denominations of ₹5 lakhs or multiples thereof.

Who can invest in commercial paper?

Commercial paper can be subscribed by various entities such as individuals, banking companies, corporate bodies, investment funds, trusts, and associations.

How are commercial papers traded?

Commercial papers are traded in the secondary market, allowing investors to buy or sell them before their maturity date. The secondary market for commercial papers in India is primarily regulated by the Reserve Bank of India (RBI).

What is the regulation for commercial paper?

The issuance and regulation of commercial papers in India is governed by the Reserve Bank of India (RBI) under the framework of the Companies Act, 2013, and the Securities and Exchange Board of India (SEBI) guidelines.

What is the credit rating requirement for commercial paper?

Companies issuing commercial paper need to obtain a credit rating from at least two credit rating agencies registered with SEBI. The minimum rating required is typically A3, as per the rating agency’s scale.

What are the advantages of investing in commercial paper?

Investing in commercial paper offers several advantages, including higher returns compared to traditional fixed deposit schemes, lower risk due to the short-term nature of the investment, and diversification of investment portfolios.

Are commercial papers taxable?

Yes, the interest earned from commercial papers is taxable as per the investor’s income tax slab. Tax Deducted at Source (TDS) may be applicable if the interest exceeds a specified threshold determined by the income tax regulations.

How does commercial paper contribute to the Indian economy?

Commercial paper plays a crucial role in providing an alternative source of short-term funding to corporations and institutions. By facilitating quick and flexible financing, commercial paper helps fuel economic growth, bridge cash flow gaps, and support overall financial stability in India.

In conclusion, commercial paper in India is a short-term money market instrument that allows corporations, banks, and financial institutions to raise funds quickly and efficiently. It serves as a vital tool in meeting short-term funding requirements, and its flexible nature makes it an attractive investment option for investors seeking higher returns in a relatively low-risk category.

Dive into the world of luxury with this video!