What are marketable securities?

Marketable securities are highly liquid securities such as stocks, short-term

bonds, commercial papers treasury bills and money market instruments etc. In
order to qualify as a marketable security, the investment must be highly liquid that
is it must be quickly convertible into cash without significant loss in value.

Marketable securities are considered as liquid as cash. Rather than holding a large
amount of cash, companies usually prefer to keep their liquid resources in the form
of a right combination of cash and marketable securities.

Marketable Securities are the financial instruments that one can easily buy or sell
in the market. The maturities of these financial instruments are usually less than a
year. Since they have high liquidity, these investments are good for businesses that
need quick cash. Some examples of these financial instruments are
government bonds, common stock or certificates of deposit.

Businesses keep their cash in reserves. Such reserves help them in situations when
they require cash, like for acquisitions or any unforeseen payment. However,
companies do not put all their cash in the reserves. Instead, they invest some in
short-term liquid securities to earn interest. This way, the cash not only earns an
interest income, but a company can also easily liquidate the investment to meet any
future cash need. The returns on such securities are relatively lower due to their
liquidity and the fact that we see them as safe investments.

FEATURES
 These are highly liquid, meaning one can easily buy and sell these securities.
 Are easily transferable on a stock exchange or otherwise.
 Offer a lower rate of return.
 These are highly marketable as there are active marketplaces where they can be
bought or sold.
Advantages/benefits of marketable securities:

Investment in marketable securities provide the following additional advantages:

(1). Interest and dividend revenue

Marketable securities earn dividend or interest revenue for the company. If a

company holds a large sum of cash and does not invest it anywhere, it will
generate nothing for the company.

(2). Increase in market value:

Marketable securities also generate a return when their market value increases.

(3). Liquidity

Unlike long term investments, purchase of marketable securities does not

impact the liquidity position of the business. They can be quickly sold in the
secondary financial markets to meet immediate cash needs of the company.

Types of Marketable Securities

1. What is Commercial Paper (CP)?

Commercial Paper (CP) is an unsecured money market instrument issued in the

form of a promissory note.

2. When it was introduced?

It was introduced in India in 1990.

3. Why it was introduced?

It was introduced in India in 1990 with a view to enabling highly rated corporate
borrowers to diversify their sources of short-term borrowings and to provide an
additional instrument to investors. Subsequently, primary dealers and all-India
financial institutions were also permitted to issue CP to enable them to meet their
short-term funding requirements for their operations.

4. Who can issue CP?

Corporates, primary dealers (PDs) and the All-India Financial Institutions (FIs) are
eligible to issue CP.

5. Whether all the corporates would automatically be eligible to issue CP?

No. A corporate would be eligible to issue CP provided –

a. the tangible net worth of the company, as per the latest audited balance sheet, is
not less than Rs. 4 crore

b. company has been sanctioned working capital limit by bank/s or all-India

financial institution/s; and

c. the borrowal account of the company is classified as a Standard Asset by the

financing bank/s/ institution/s.

6. Is there any rating requirement for issuance of CP? And if so, what is the
rating requirement?

Yes. All eligible participants shall obtain the credit rating for issuance of
Commercial Paper either from Credit Rating Information Services of India Ltd.
(CRISIL) or the Investment Information and Credit Rating Agency of India Ltd.
(ICRA) or the Credit Analysis and Research Ltd. (CARE) or the FITCH Ratings
India Pvt. Ltd. or such other credit rating agency (CRA) as may be specified by the
Reserve Bank of India from time to time, for the purpose.

The minimum credit rating shall be A-2 [As per rating symbol and definition
prescribed by Securities and Exchange Board of India (SEBI)].

The issuers shall ensure at the time of issuance of CP that the rating so obtained is
current and has not fallen due for review.

7. What is the minimum and maximum period of maturity prescribed for CP?

CP can be issued for maturities between a minimum of 7 days and a maximum of

up to one year from the date of issue. However, the maturity date of the CP should
not go beyond the date up to which the credit rating of the issuer is valid.

8. What is the limit up to which a CP can be issued?

The aggregate amount of CP from an issuer shall be within the limit as approved
by its Board of Directors or the quantum indicated by the Credit Rating Agency for
the specified rating, whichever is lower.
As regards FIs, they can issue CP within the overall umbrella limit prescribed in
the Master Circular on Resource Raising Norms for FIs, issued by DBOD and
updated from time-to-time.

9. In what denominations a CP that can be issued?

CP can be issued in denominations of Rs.5 lakh or multiples thereof.

10. How long can the CP issue remain open?

The total amount of CP proposed to be issued should be raised within a period of

two weeks from the date on which the issuer opens the issue for subscription.

11. Whether CP can be issued on different dates by the same issuer?

Yes. CP may be issued on a single date or in parts on different dates provided that
in the latter case, each CP shall have the same maturity date. Further, every issue
of CP, including renewal, shall be treated as a fresh issue.

12. Who can act as Issuing and Paying Agent (IPA)?

Only a scheduled bank can act as an IPA for issuance of CP.

13. Who can invest in CP?

Individuals, banking companies, other corporate bodies (registered or incorporated

in India) and unincorporated bodies, Non-Resident Indians (NRIs) and Foreign
Institutional Investors (FIIs) etc. can invest in CPs. However, investment by FIIs
would be within the limits set for them by Securities and Exchange Board of India
(SEBI) from time-to-time.

14. Whether CP can be held in dematerilaised form?

Yes. CP can be issued either in the form of a promissory note (Schedule I given in
the Master Circular-Guidelines for Issue of Commercial Paper dated July 1, 2011
and updated from time –to-time) or in a dematerialised form through any of the
depositories approved by and registered with SEBI. Banks, FIs and PDs can hold
CP only in dematerialised form.

15. Whether CP is always issued at a discount?

Yes. CP will be issued at a discount to face value as may be determined by the
issuer.

Certificate of Deposit (CD) Explained

Certificate of Deposit (CD) is a negotiable money market instrument and issued in
dematerialised form or as a Usance Promissory Note against funds deposited at a
bank or other eligible financial institution for a specified time period. It was
introduced in India in 1989.

Who governs Certificate of Deposit in India?

Guidelines for issue of CDs are presently governed by various directives issued by
the Reserve Bank of India (RBI)

Who can issue Certificate of Deposit?

CDs can be issued by:

1. Scheduled commercial banks {excluding Regional Rural Banks and Local

Area Banks}
2. Selected All-India Financial Institutions (FIs) that have been permitted by
RBI

What is the return on Certificate of Deposit?

The CDs are issued at discount price on face value. So return is the difference
between issue price and face value.

Issue size

 Minimum amount = 1 lakh and in multiple of Rs 1 lakh thereafter

 Maximum amount
1. Banks can issue CDs depending on their funding requirements
2. An FI can issue CD within the overall umbrella limit prescribed in the
Master Circular on Resource Raising Norms for FIs, issued by DBOD
and updated from time-to-time
Who can invest in CD?

CDs can be issued to:

 Individuals
 Corporations
 Companies (including banks and PDs)
 Trusts
 Funds
 Associations
 Non-Resident Indians (NRIs), but only on non-repatriable basis. Such CDs
cannot be endorsed to another NRI in the secondary market.

Foreign portfolio investors (FPIs) are not permitted to invest in CDs

Maturity of CD

The maturity period of CDs is different for banks and FIs.

1. For Banks

 Minimum Period is 7 days

 Maximum period is 1 year

2. For financial institutions

 Minimum Period is 1 year
 Maximum period is 3 years

TREASURY BILLS

When the government is going to the financial market to raise money,

it can do it by issuing two types of debt instruments – treasury bills
and government bonds. Treasury bills are issued when the
government need money for a shorter period while bonds are issued
when it need debt for more than say five years.Treasury bills;
generally shortened as T-bills, have a maximum maturity of a 364
days. Hence, they are categorized as money market instruments
 (money market deals with funds with a maturity of less tha n one
year).Treasury bills are presently issued in three maturities, namely,
91 day, 182 day and 364 day. Treasury bills are zero coupon
securities and pay no interest. Rather, they are issued at a discount (at
a reduced amount) and redeemed (given back money) at the face
value at maturity. For example, a 91 day Treasury bill of Rs.100/ -
(face value) may be issued at say Rs. 98.20, that is, at a discount of
say, Rs.1.80 and would be redeemed at the face value of Rs.100/ -
. This means that you can get a hundred-rupee treasury bill at a lower
price and can get Rupees hundred at maturity. The return to the
investors is the difference between the maturity value or the face
value (that is Rs.100) and the issue price. The Reserve Bank of India
conducts auctions usually every Wednesday to issue T-bills. The
rational is that since their maturity is lower, it is more convenient to
avoid intra period interest payments. Treasury bills are usually held
by financial institutions including banks. They have a very importan t
role in the financial market beyond investment instruments. Banks
give treasury bills to the RBI to get money under repo. Similarly, they
can keep it as part of SLR.
MONEY MARKET MUTUAL FUNDS
Money market mutual funds (MMMF) are short-run liquid investments which
invest in high quality money market instruments. It provides investors with
a reasonable returns along with good liquidity over a period of up to 1 year. oney
market mutual funds (MMMF) are used to manage the short-run cash needs. It
is an open-ended scheme in the debt fund category which deals only in cash or
cash equivalents. These securities have an average maturity of one-year; that is
why these are termed as money market instruments.
The fund manager invests in high quality liquid instruments like Treasury Bills (T-
Bills), Repurchase Agreements (Repos), Commercial Papers and Certificate of
Deposits. This fund aims to earn interest for the unit holders. The main aim is to
keep fluctuations in the funds’ Net Asset Value (NAV) to minimum.
Money market fund can be compared with savings account which comprises of
cheque facility, the facility to redeem without lock-in period and electronic money
transfer.