With respect to the “Commercial Paper” consider the following statements:
1. These are issued at a discount to face value.
2. It is issued in a minimum denomination of ₹5 lakh.
3. Non-residents Indians and foreigners are not permitted to invest in CPs.
Which of the statements given above is/are correct?
(a) 1 and 2 only
(b) 2 and 3 only
(c) 1 only
(d) 1, 2 and 3
Explanation Statement 1 is correct: Commercial Paper (CP) is an unsecured, short-term debt instrument issued by companies to raise funds for a period typically ranging from 7 days to 1 year. It is issued at a discount to face value, and the investor receives the face value on maturity.
Statement 2 is correct: As per RBI guidelines, Commercial Papers (CPs) are issued in a minimum denomination of ₹5 lakh and in multiples thereof. This threshold ensures that CPs are largely accessible only to institutional and high-net-worth investors, reducing the risk for small retail investors.
Statement 3 is not correct: Non-residents, including NRIs and foreign investors, are permitted to invest in Commercial Papers subject to the provisions of FEMA, 1999 and the associated regulations.
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