Commercial Paper

RBI allowed the issue of commercial paper after the acceptance of Vaghul committee recomandations in the year 1989.
The CP(Commercial Paper) is a short term negotiable instrument, consisting of usance primary notes with a fixed maturity, indicating the short term obligation of an issuer.Companies as a means of raising short term debt issue it. It is issued on a discount to a face value basis but can also be issued in interest bearing form. The issuer promises the buyer a amount at a future date but pledges no assets.
A CP, as a short term financial instrument, has several advantages to the issuer. It involves very little documentation. It is flexible in terms of maturity. It is un secured. There are no limitations on the end use of the funds used in this manner. They are negotiable and transferable instruments and are highly liquid.
The participants in this market are the corporate bodies, banks, mutual funds, UTI, LIC, GIC and others who have surplus funds and are on a lookout for opportunities for short term investments.
The CP market is fairly popular these days; however a secondary market in these is yet to develop.

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