Commercial papers | Srei Bonds
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Commercial Paper

A Commercial Paper (CP) is an unsecured money market instrument issued in the form of a promissory note. It is a short-term promise made by a corporate, to repay the fixed amount that is invested by the investors. CP can be issued for maturities between a minimum of 7 days and a maximum of up to one year from the date of issue.

  • Companies in order to meet their short-term debt obligations and working capital requirements issue commercial papers.
  • It does not require any guarantee from the investors.
  • It has a fixed maturity period.
  • It can be freely transferred from one party to another.
  • After attaining a credit rating, CP becomes highly liquid, i.e. it can be bought and sold easily.

Benefits of CP

  • It is a negotiable financial instrument and is commonly traded among the investors through established markets.
  • It is highly liquid and is convertible to any currency or checkable deposit.
  • It helps individuals and corporates park their money for a short duration of less than a year.
  • It can be sold either directly by the issuing company to the investors or issuer can sell it to the dealer who in turn will sell it into the market.
  • It provides investors with exit options to quit the investment as and when it fits them.

Faqs (Frequently Asked Questions) For Commercial Paper (CP)

Q1. Who can issue a commercial paper?

A1. Any Corporate, Primary dealers, & All India Financial Institutions can issue CPs.

Q2. Why do companies issue CP?

A2. A company issues a CP in order to get money to meet the short-term debt obligations of the company.

Q3. What is the eligibility to issue CP?

A3. To issue a CP, a corporate must:

  • Have a tangible net worth, not less than Rs. 4 crores.
  • Have a borrowing account classified as Standard Asset.
  • A working capital limit must be sanctioned to the company by any Bank/ Financial Institutions.

Q4. What is the credit rating required for the issuance of CP?

A4. A corporate must attain at least A2 rating from credit rating agencies like CRISIL, CARE, FITCH.

Q5. Who can invest in CP?

A5. Any Individual, Banking Companies, NRI, corporate, unincorporated body can invest in CP.

Q6. What is the minimum & maximum period of maturity of CP?

A6. CP can be issued for minimum 7 days & maximum 365 days.

Q7. What is the minimum investment requirement for CP?

A7. An investor must invest minimum Rs.5 lakhs in CP. However, amount greater than 5 lakhs are acceptable.

Q8. What are the forms of CP?

A8. CP can be either in Physical form i.e. promissory note OR in Dematerialized form.

Q9. How can the investor get his invested money back?

A9. On the event of maturity of CP, the holder of CP shall:

  • If it is in physical form, present the instrument for payment to the issuer through the IPA (Issuing & Paying Agent) / Scheduled Bank.
  • If in dematerialized form, will have to get it redeemed through the depository and receive payment from the IPA (Issuing & Paying Agent) / Scheduled Bank.