Features and purpose CDs , Financial Management

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The distinct features of CDs are:

  • CD is a document of title to a time deposit and is distinct from conventional time deposit with respect to negotiability and marketability.
  • CDs are considered as virtually riskless instruments as the default risk is almost nil, and investors are sure of receiving the invested amount with interest.
  • The liquidity and marketability features are considered as the hallmarks of CDs.
  • CDs are issued at a discount to face value.
  • CDs are maturity-dated obligations of banks forming a part of time liabilities, and are subjected to usual reserve requirements.
  • CDs may be either registered or in a bearer form. The latter form, however, is considered better for secondary market operations.
  • CDs attract stamp duty and there is no grace period, as in the case of bill financing.
  • CDs are freely transferable by endorsement and delivery.
  • The CDs issued are within the limit as specified by Reserve Bank of India.
  • CDs are also issued in demat forms only. Only the request of Investors they can be issued in physical form.
  • CDs held in the demat form can be transferred as per the procedure applicable to other demat securities.
  • The trade settlement will take place on T + 1 day basis; however, the settlement period will be subject to the ceiling of T + 5 days or such period of settlement as specified by the exchanges, whenever the trade is done on a recognized stock exchange.

 


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