Commercial paper and Certificate of deposit are securities that proceeded to borrow money for a short period of time. Mostly the authorized companies and banks are the investors in the market. Let us discuss more on commercial paper and Certificate of deposit.
What is Commercial Paper?
Commercial paper is a short-term monetary tool used to raise funds over a short period of a maximum of one year.
These papers are used to raise funds and are preferred more than bank loans because huge amounts of funds can be raised for a short period of time.
Only the organizations that have good debit ratings and reputation in the market can issue commercial paper to get funds at a low-interest rate.
If the company does not have good debit ratings, they can also borrow money, but they may have to pay higher interest. The maturity of this tool gets over within 300 days.
Huge organizations usually issue these to cover short-term receivables and satisfy short-term commercial responsibilities.
Benefits of Commercial Paper
- Extra income can be provided when the cost of a commercial bank loan is higher than the cost of paper to the issuing company.
- It is flexible and has a high liquid value.
- Maturity is completed in a short period of time.
- The company does not have to spend high to get good returns.
- The company can sell new commercial papers to increase the duration of maturity.
What is the Certificate of Deposit?
It is a fixed-pay commercial tool that is governed by the Reserve bank of India(RBI) circulated in a dissolution form. The paying money is fixed from the start.
All Indian financial corporations can issue a certificate of deposit, and the price can be low or high depending on their merit or worth.
The Certificate of the deposit indicates in writing that you have deposited your money in a financial organization that is a bank for a fixed period.
The bank will pay you interest based on the amount and time period of the deposit.
Benefits of Certificate of Deposit
- There is a guarantee of receiving a fixed amount from the beginning, and there is proper safety of the capital in the Certificate of deposit instrument.
- In the Certificate of deposit, you will receive high interest because the financial institutions provide a high-interest rate.
- There is the flexibility of withdrawing the money. Whenever you want, you can withdraw money under the guidelines of the financial institution.
- There is no additional or transactional fee charged by the financial institution in this instrument.
Difference Between Commercial Paper and Certificate of Deposit
Commercial paper is a short-term commercial tool distributed by businesses to maximize funds for a maximum of one year. A certificate of deposit is a financial tool where income is fixed, and it is issued by financial institutions.
Banks, corporate companies, NRI’s, FII’s, and individuals invest in commercial paper. Corporate companies, banks, corporations, funds, associations, and companies are investors in the Certificate of deposit.
High-rated corporate companies issue commercial papers, whereas, for Certificates of deposit, capital is issued by financial institutions and banks.
The maturity period of commercial paper starts from 7 days and maximum can go to a year, and the duration of the Certificate of deposit is also the same.
In commercial paper instrument minimum funds required is Rs 5 lakh, and in the Certificate of deposit minimum amount required is 7 lakh.
Commercial paper is based on dematerialization and commitment, whereas Certificate of deposit is only in dematerialized form.
In commercial paper minimum p2 rating of CRISIL is needed, whereas in the Certificate of deposit on credit rating is required.
There are many differences between commercial paper and a Certificate of deposit, and it depends on you which organization you want to choose.
If you want good growth in your business, read out the difference between commercial paper and Certificate of deposit and choose everything according to your priorities.