NISM-Series-VI: Depository Operations · Special Services - Debt Instruments and Government Securities

Money Market Instruments: CP and CD in Demat Form

Updated 11 October 2026 · Fact-checked

Commercial paper (CP) and certificates of deposit (CD) are short-term, discount-based money market instruments. CP is issued by companies and similar entities. CD is issued by banks and certain financial institutions. Both are held in demat form with a depository. To solve questions, identify the issuer, then check tenure, minimum size and the depository role.

Understand Money Market Instruments: CP and CD in Demat Form

Money market instruments are debt instruments with a maturity of up to one year. Two common ones are commercial paper (CP) and certificate of deposit (CD). Both are issued at a discount to face value and redeemed at face value on maturity. The difference between the two amounts is the investor's return.

Commercial paper is an unsecured, negotiable instrument issued by a company, NBFC or eligible financial institution to raise short-term funds. It needs a minimum credit rating from a SEBI-registered rating agency. It is issued through an issuing and paying agent (IPA), which is a scheduled bank. Check the workbook for the current rules on the IPA.

Certificate of deposit is a negotiable term deposit certificate issued by scheduled commercial banks and by certain all-India financial institutions permitted by RBI. Regional rural banks and local area banks cannot issue CDs. Check your NISM workbook for the rating rules that apply to CDs.

Both are issued in dematerialised form. The issuer or its IPA applies to the depository, and the depository credits the securities to the investors' demat accounts through their depository participants (DPs). Trading and transfer then happen as book entries, like any other demat security. On maturity, the issuer pays the face value through the IPA or the bank, and the depository extinguishes the securities from the accounts.

For the exam, remember the pairs: issuer, minimum size, tenure range, and demat form. Most questions test one of these differences. Always confirm the exact figures against your NISM workbook, because RBI updates its directions from time to time.

Key formulas to remember

CP tenure: Minimum 7 days to maximum 1 year from the date of issue; Applies to commercial paper under RBI directions. Maturity date cannot go beyond the validity of the credit rating.
CP minimum denomination: ₹5,00,000 and multiples thereof; Minimum investment per investor is also ₹5 lakh (face value).
CD tenure for banks: Minimum 7 days to maximum 1 year; Eligible financial institutions issuing CDs have been allowed a longer tenure, from 1 year up to 3 years. Verify the current figures in your latest NISM workbook.
CD minimum denomination: ₹5,00,000 and multiples thereof; The current RBI directions (2024) set the same ₹5 lakh minimum for CP and CD. Older material may show a lower CD figure, so check your latest NISM workbook.
Issue price of a discount instrument: Issue price = Face value ÷ (1 + yield × days ÷ 365); Discount = Face value − Issue price. Yield is the annual rate expressed as a decimal.
Form of issue: CP and CD → demat form with a depository; Holding and transfer are by electronic book entry through DPs.

How to solve Money Market Instruments: CP and CD in Demat Form questions

Use this order for any question on CP or CD in demat form.

1Read the question and mark the instrument: CP or CD. Look at the issuer named.
2If the issuer is a company, NBFC or financial institution raising short-term funds, think CP. If it is a bank, think CD.
3Check the number asked for: tenure, minimum denomination, or who can issue. Recall the pair for that instrument.
4Check the form: both are issued in demat form, so options saying physical-only are usually wrong.
5For depository handling, think of the sequence: issuer or IPA applies to the depository, ISIN is activated, securities are credited to investor demat accounts through DPs.
6If a calculation is needed, use Issue price = Face value ÷ (1 + yield × days ÷ 365), then find the discount.
7Eliminate options that mix CP and CD figures, then choose the one that fits all conditions.

Quickest way: Pair-matching shortcut for CP vs CD

When to use it: Use when the question asks for a difference, a limit, or who can issue.

Link CP to companies, NBFCs and eligible financial institutions. Link CD to banks.
Remember that the current RBI directions (2024) set the minimum denomination at ₹5 lakh for both CP and CD, so size does not separate them. Check your latest NISM workbook.
Link tenure for both (bank CD and CP) to 7 days up to 1 year. FI CDs have a longer range of 1 to 3 years. Verify this in the workbook.
Remember both are discount instruments held in demat form.
Reject any option that gives the wrong issuer, tenure or form for the instrument named.

Common mistakes in Money Market Instruments: CP and CD in Demat Form

Using an old, lower figure such as ₹1 lakh as the minimum size for CP or CD
Older study material and notes quoted lower figures, and the two instruments look alike.
Fix: The current RBI directions (2024) set ₹5 lakh for both CP and CD. Confirm the figure in your latest NISM workbook.
Saying CDs can be issued by any bank
Students assume all banks are covered.
Fix: Remember that scheduled commercial banks issue CDs. Regional rural banks and local area banks are excluded.
Applying the 1 to 3 year tenure to bank CDs
The FI tenure and the bank tenure get blended.
Fix: Bank CDs run from 7 days to 1 year. The 1 to 3 year range is for eligible financial institutions. Verify the current figures in your NISM workbook.
Thinking CP or CD is interest-bearing with coupons
Other debt instruments pay coupons.
Fix: Both are discount instruments. Return is the gap between issue price and face value.
Treating CP as a secured instrument
Confusion with debentures.
Fix: CP is unsecured. It rests on the issuer's credit rating, not on any charge on assets.
Forgetting the role of the IPA
Students focus only on the depository and DP.
Fix: Remember the IPA, which is a scheduled bank, handles issuance and payment at maturity for CP and works with the depository. Check the workbook for the current rules.

Worked examples

Example 1

A company issues commercial paper with a face value of ₹5,00,000 at ₹4,90,000. What is the discount, and is the denomination valid under the usual CP rule?

Show the solution

Discount = Face value − Issue price = ₹5,00,000 − ₹4,90,000 = ₹10,000.
Check denomination: CP must be in ₹5,00,000 and multiples thereof. ₹5,00,000 meets this.
Since it is a discount instrument, the investor earns the ₹10,000 gap at maturity, when ₹5,00,000 is paid.

Answer: The discount is ₹10,000 and the denomination is valid.

Example 2

A 90-day commercial paper of face value ₹5,00,000 is priced to give a yield of 8% a year. Find the issue price and the discount.

Show the solution

Issue price = Face value ÷ (1 + yield × days ÷ 365).
Yield × days ÷ 365 = 0.08 × 90 ÷ 365 = 7.2 ÷ 365 = 0.019726.
Denominator = 1 + 0.019726 = 1.019726.
Issue price = ₹5,00,000 ÷ 1.019726 = ₹4,90,328 approximately.
Discount = Face value − Issue price = ₹5,00,000 − ₹4,90,328 = ₹9,672 approximately.

Answer: The issue price is about ₹4,90,328 and the discount is about ₹9,672.

Example 3

Which of the following is correct about a certificate of deposit issued by a scheduled commercial bank? (A) Tenure 7 days to 1 year (B) Issued only in physical form (C) Can be issued by regional rural banks (D) Pays a fixed coupon every six months

Show the solution

Option A matches the bank CD tenure of 7 days to 1 year.
Option B is wrong because CDs are issued in demat form.
Option C is wrong because regional rural banks cannot issue CDs.
Option D is wrong because a CD is a discount instrument, issued below face value and redeemed at face value, with no periodic coupon.

Answer: (A) Tenure 7 days to 1 year.

Exam tips

Build a small two-column table in your head: issuer, minimum size, tenure, form. Most questions come from it.
Watch the words 'minimum' and 'maximum'. Examiners swap them to create trap options.
If an option says physical form only for CP or CD, treat it as suspect.
Negative marking is 25% of the marks assigned to a question, so skip a question when you cannot narrow it to two options.
Confirm exact figures from your latest NISM workbook, since RBI directions are revised.

Practice questions from Special Services - Debt Instruments and Government Securities

Money Market Instruments: CP and CD in Demat Form: frequently asked questions

What is the difference between commercial paper and certificate of deposit?

CP is issued by companies, NBFCs and eligible financial institutions. CD is issued by scheduled commercial banks and some financial institutions. Under the current RBI directions (2024) both have a ₹5 lakh minimum denomination, so check your latest NISM workbook. Both are discount instruments held in demat form.

Are CP and CD issued in demat form?

Yes. They are issued in dematerialised form with a depository. Investors hold them in demat accounts opened with a DP, and transfers happen by book entry.

What is the tenure of commercial paper?

CP can be issued for a minimum of 7 days and a maximum of one year from the date of issue. The maturity should not go beyond the validity of the credit rating.

What does the depository do in a CP issue?

The issuer, through its IPA, applies to the depository for an ISIN and credit of the instrument. The depository then credits the securities to investors' demat accounts through their DPs, and removes them on maturity.