A certificate of Deposit is the fixed income financial tool that is governed by the Certificate of Deposit RBI and issued in dematerialized form. Here the withdrawal amount is guaranteed from the very beginning. It could be issued by any Indian financial institution or commercial bank. A certificate of Deposit in India is issued at a discount given at face value. Similar to an FD, the CD aims to denote in writing that you have deposited money in the bank for a fixed period, and the bank would pay you interest - based on the amount and the period of your Deposit.
Now that you know Certificate of Deposit Meaning, it's time to know about different attributes of it. Opening the certificate of Deposit is similar to the procedure of opening an FD account. The major difference is the features of the two; mentioned below are the components of the Certificate of Deposit:
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Certificate of Deposit Definition: |
The certificate of Deposit is the product that is offered by banks and credit unions that give an interest rate premium in exchange for the customer agreeing to lock in an amount for a predetermined period of time. |
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Certificate of Deposit Interest Rates: |
Locked rates are the positive attributes of CDs, and they will provide a clear and predictable return to the Deposit over a time period. The bank will not, even later on - change the rate, making it a guaranteed return. |
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Certificate of Deposit Minimum Amount: |
With the exception of some specialty CDs, you can agree upon a principal amount to open the CD. The minimum amount of Deposit begins at Rs. 1,00,000. |
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Certificate of Deposit Tenure: |
This is the length of the period for the CD; for instance, it could be six months to years. The tenure ends on the date of the maturity; when the CD has matured completely, you will be able to withdraw the funds without a penalty fee. |
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Eligibility Criteria: |
CDs are issued by scheduled commercial banks and selected financial institutions in the country as allowed by RBI within the limit. Certificates of Deposits are issued to individuals, corporations, companies, and funds, among others. Certificate of Deposits could also be issued to NRIs but on a non-repatriable basis only. It is crucial to note that banks and financial institutions can't provide loans against CDs. Also, banks would not buy their own CDs before the latter's maturity. The aforementioned norms would be relaxed by the RBI for a particular period of time. It is crucial to note that banks have to maintain the statutory liquidity ratio and cash reserve ratio on the price of a Certificate of Deposit. |
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Taxes: |
Certificates of deposits are completely fully taxable in the hands of investors under the Income Tax Act. |
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Opportunity for Loans: |
A depositor can get loans against CDs, except for the permitted explicitly by the RBI. The issuer is given to buy back CDs before maturity at the prevailing market price. The investors could opt for accepting or rejecting the CDs purchased back offer as per wants. |
The process of buying and selling CDs is similar to that of buying and selling shares, and the steps are mentioned below:
Step 1: The seller and the buyer need to agree on the price and the quality of the transaction.
Step 2: The seller will authorize its depository participants through the delivery instructions slip.
Step 3: The slip will be inclusive of the instructions to debit the seller's account and transfer the CD to the account of the buyer.
Step 4: In the case of any confusion, you can also get assistance from a professional.