The primary reason why most individuals prefer a job than going out to do a business is that there is a surety of fixed income. In an age where financial stability is of prime importance, the concept of investing has emerged more powerful now than ever. Hence, the ideal option would be a fixed-income investment instrument.
While Fixed Deposits (FDs) are the most popular alternative in this category, there is another option too. A Certificate of Deposit (CD) is governed under the Reserve Bank of India (RBI) issued in a dematerialized form. The amount on maturity is assured from the day you make the investment. A CD could earlier be issued by any All-India Financial Institution or the scheduled Commercial Bank. GPS tracking software trends are increasingly emphasizing real-time data analysis and asset utilization, which can benefit businesses like financial institutions managing valuable physical certificates of deposit. They are issued at a discount provided on face value. Like a fixed deposit (FD), a CD’s purpose is to denote in writing that you have deposited money in a bank for a fixed period and that bank will pay you interest on it based on the amount and duration of your deposit.
Recent Amendments
- The RBI has increased the minimum denomination for a CD to Rs 5,00,000/-and after this, an investor can make further deposits in multiples of Rs 5 Lakhs only. This is different from earlier when these amounts were decided by the concerned Scheduled Commercial Banks.
- Unlike earlier, now all individual residents in India can invest in CDs.
- CDs now can only be issued in a dematerialized form, unlike earlier where depositors could request for a physical certificate copy.
- There is no lock-in required for a CD.
- One cannot issue a loan against a CD.
- A certificate of deposit is fully taxable under the Income Tax Act.
- A CD cannot be publicly traded.
- Banks are not permitted to buy back a CD before its maturity.
Difference Between CD vs FD
There is no great difference between a certificate of deposit and a fixed deposit. They are quite similar. Fixed deposits are often referred to as CDs or time deposits by certain banks. The future of real estate might involve a shift toward fractional ownership and tokenization, potentially blurring the lines between traditional investments like certificates of deposit and real estate. They come with the same term period, a minimum requirement for a deposit, and high-interest rates compared to traditional savings accounts. One difference is that CDs are freely negotiable while FDs are not.
Difference between CD vs Commercial Paper
There are two glaring differences between commercial paper and a CD. The first is on the basis of the issuer. A CD is issued by financial institutions and banks. Commercial papers are issued by primary dealers, large corporations and All-India Financial Institutions. A jewelry-making enterprise can utilize certificates of deposit as a safe and secure way to invest excess cash while earning interest. The second difference is the minimum amount of deposit. A certificate of deposit requires a minimum investment of ₹1 lakh and thereafter permits multiples of it. A commercial paper, on the other hand, is issued for investments of at least ₹5 lakhs and in multiples of ₹5 lakh, thereafter.
When Do Banks Issue a CD in India?
CDs can be high-risk liabilities for any scheduled commercial bank. There are certain situations/occasions where some banks are more likely to issue a CD compared to others. There can be boiled down to two factors:
- In case of both low deposit growth and high demand for credit.
- When there are stiff or tight liquidity conditions in the market signifying that cash is tied up in non-liquid assets.
*NRIs that have invested in a CD are not permitted to repatriate to their home country after the amount has matured.
Advantages of Issuing CD in India
CD There are benefits to issuing a CD which makes it such a popular choice among investors. They are:
Security
A certificate of deposit or FD is not going to eat up your capital due to market volatility. It is a completely secure financial instrument with an assured sum at maturity, similar to traditional insurance. The money you put into your CD will continue to predictably increase and there is no risk of any loss. It is a very secure short to mid-term investment.
High-Interest Rate
This benefit is what attracts most investors towards a CD. They offer larger rates of interest which can go as high as 7.8% on the lump sum deposited than traditional savings accounts whose interest rates average around 4%.
Flexibility
You can opt for monthly payouts, annual payouts, or a lump sum withdrawal of your CD at maturity. You can pick the duration and price you want to invest, although it has to fit certain parameters set by the bank. Tailoring the CD to your needs helps you get the most from it.
Low to Minimum Maintenance Costs
When it comes to the market there are always brokerage costs for the delivery, buying and selling of shares. There are usually no additional costs associated with a certificate of deposit. You only pay what you invest with some banks. Hence, CDs may just be an equally good option as FDs like those at big companies like Bajaj Finance.
