Commercial Paper brings a new opportunity for investors interested in short term investments in the Money market. This was introduced in 1990 beginning a reformation in the Money Market.
It is unsecured promissory notes issued by top rated corporate, primary dealers, satellite dealers and the all India financial institutions. Commercial papers are short term investment.
The maturity of commercial papers are between seven days and up to one year from the date of issue. However, the maturity date of the commercial papers should be within the date which the credit rating of the issuer is valid. 5 lakh and in multiples of value can be issued in case of commercial paper.
The main features of Commercial Paper
- Corporate having tangible net worth of not less than 4 crore rupees only can issue them.
- All commercial papers require credit rating from a credit rating agency ( from any of the credit rating systems in India like CRISIL, ICRA….etc RBI mentions guidelines from time to time.
- In order to issue commercial paper, it has to secure minimum A-2 rating.
- Commercial papers are also issued at lower rate than the original value.
Commercial papers have become a great advantage for corporate companies to get short term loans very quickly compared to the traditional form of getting loans. Commercial papers are not rated so the investors are advised to pay attention while investing in commercial paper.
