Main Characteristics of DC or, Deposit Certificate

Main Characteristics of DC or, Deposit Certificate

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An agreement between the depositor and the bank in which a predetermined sum of money is fixed for a predetermined amount of time and the bank pays interest on it is known as a Certificate of Deposit (CD). It is a promissory note insured by the FDIC or, the Federal Deposit Insurance Corporation that is a money market instrument that is issued against some funds for a specific period of time.

The CD is subject to periodic guidelines from the Reserve Bank of India (RBI). If the depositor does not make a decision regarding what to do with the matured amount within the seven-day grace period, the Dematerialized Certificate of Deposit, which is issued electronically, may be automatically renewed. It likewise limits the holder from pulling out the sum on request or suffer a consequence, in any case. At the point when the Endorsement of Store develops, the chief sum alongside the premium procured is accessible for withdrawal.

The Certificate of Deposit stands out with its following main features:

1. Eligibility - Certificates of Deposit can only be issued by authorized scheduled commercial banks and financial institutions in India. These certificates cannot be issued by regional rural banks or cooperative banks. These can only be given to people, businesses, funds, etc. On a non-repatriable basis, it can be issued to Non-Resident Indians (NRIs).

2. Period of Maturity - The maturity period for a commercial bank certificate of deposit can be anywhere from seven days to one year. It ranges from one year to three years for financial institutions. The minimum deposit amount is Rs. 1 Lakh.

3. Transferability - Transferring Demat-formatted certificates is required in accordance with Demat securities guidelines. While Dematerialised/electronic declarations can be moved by support or conveyance.

4. Loan Availability - Banks do not offer loans against these instruments because they do not have a lock-in period. In point of fact, banks are unable to even buy back certificates of deposit prior to their maturity. The SLR or, the Statutory Liquidity Ratio and the CRR or, the Cash Reserve Ratio levied upon the DC prices or, rates have to be considered first.