Commercial Paper (CP)

Commercial Paper is an unsecured, short-term debt instrument issued by eligible entities to meet short-term funding needs.

The material identifies corporates, financial institutions and public sector undertakings as CP issuers.

Commercial Paper has a short-term maturity ranging from 7 days to 1 year.

The provided material states that CP is typically issued in denominations of ₹5 lakhs or multiples thereof.

Commercial Paper is unsecured and relies on the creditworthiness of the issuing entity.

CP is generally issued below face value, with the discount representing the investor‘s return.

A strong credit rating helps establish investor confidence in the issuer and is an important requirement for CP issuance.

The material states that Commercial Paper in India is regulated by the Reserve Bank of India under its guidelines.

CPs are usually issued in dematerialized form to facilitate transfer and improve transparency.

An Issuing and Paying Agent, typically a bank or financial institution, handles CP issuance and redemption.

CP may offer higher returns than T-Bills because it carries relatively higher credit risk.

Commercial Paper can be a cheaper source of short-term borrowing compared with traditional bank loans.

Because CP is unsecured, investors face credit risk if the issuer‘s financial condition deteriorates or it defaults.

CPs can be traded in the secondary market, providing investors with an opportunity to obtain liquidity before maturity.

Commercial Paper is commonly used for working capital, bridge financing and short-term liquidity management.