{"id":14212,"date":"2026-05-27T07:39:20","date_gmt":"2026-05-27T07:39:20","guid":{"rendered":"https:\/\/lemonn.co.in\/blog\/glossary\/commercial-paper\/"},"modified":"2026-05-27T07:39:20","modified_gmt":"2026-05-27T07:39:20","slug":"commercial-paper","status":"publish","type":"glossary","link":"https:\/\/lemonn.co.in\/blog\/glossary\/commercial-paper\/","title":{"rendered":"Commercial Paper"},"content":{"rendered":"

Commercial Paper<\/a> (CP) is a short-term, unse<\/a>cured debt instrument issued by companies, primary dealers, and all-India financial institutions to raise funds for working capital needs. It is issued at a discount to face value<\/a> and redeemed at face value on maturity, with the difference being the return for the investor.<\/p>\n

What Is Commercial Paper?<\/h2>\n

CP is a money market instrument with a maturity of 7 days to 1 year. Companies use it as a cheaper alternative to bank credit for short-term funding needs like payroll, inventory purchases, or bridge financing.<\/p>\n

CP is issued in the form of a promissory note and is regulated by the Reserve Bank of India.<\/p>\n

Key Features<\/h2>\n

– **Issuer**: companies with a minimum credit rating of A2 (as per CRISIL or equivalent rating agency)
\n– **Tenor**: minimum 7 days, maximum 1 year
\n– **Issued at discount**: face value is the redemption amount; actual issue price is lower
\n– **Minimum denomination**: Rs 5 lakh per CP
\n– **Investors**: banks, mutual fund<\/a>s, FIIs, insurance companies, and corporates; not usually available to retail investors directly<\/p>\n

How CP Pricing Works<\/h2>\n

If a company issues a Rs 10 lakh CP at a 6% annualised yield<\/a> for 90 days:
\n– Discount: Rs 10 lakh x 6% x (90\/365) = Rs 14,795
\n– Issue price: Rs 10 lakh – Rs 14,795 = Rs 9,85,205
\n– At maturity, the investor receives Rs 10 lakh<\/p>\n

CP vs Bank Loans<\/h2>\n

| Feature | CP | Bank Loan |
\n|———|—–|———-|
\n| Cost | Often lower | Higher |
\n| Collateral | None | May be required |
\n| Flexibility | High | Moderate |
\n| Investor | Institutional | Bank only |
\n| Credit rating | Mandatory | Not required |<\/p>\n

Who Invests in CP?<\/h2>\n

– Mutual funds (liquid and money market funds) are major investors in CP
\n– Banks invest surplus funds in CP
\n– Insurance companies for short-term deployment<\/p>\n

When you invest in a liquid mutual fund, a portion of the fund’s portfolio<\/a> is likely in commercial paper.<\/p>\n

Practical Example<\/h2>\n

A large consumer goods company needs Rs 200 crore for 3 months to fund a seasonal inventory build-up before Diwali. Instead of a bank overdraft at 8.5%, it issues commercial paper at 6.8% (annualised yield), saving on borrowing costs. A mutual fund buys the CP as part of its liquid fund portfolio.<\/p>\n

Key Takeaways<\/h2>\n

– CP is a short-term unsecured debt instrument (7 days to 1 year) for corporate working capital needs
\n– Issued at a discount to face value; redemption at face value is the investor’s return
\n– Only companies with minimum credit rating A2 or above can issue CP
\n– Liquid and money market mutual funds are major investors in CP
\n– CP is cheaper than bank credit for well-rated companies and offers flexible short-term financing<\/p>\n","protected":false},"excerpt":{"rendered":"

Commercial Paper (CP) is a short-term, unsecured debt instrument issued by companies, primary dealers, and all-India financial institutions to raise funds for working capital needs. It is issued at a discount to face value and redeemed at face value on maturity, with the difference being the return for the investor. What Is Commercial Paper? CP […]<\/p>\n","protected":false},"author":3,"featured_media":0,"menu_order":0,"template":"","meta":{"_uag_custom_page_level_css":"","footnotes":""},"class_list":["post-14212","glossary","type-glossary","status-publish","hentry"],"blocksy_meta":[],"uagb_featured_image_src":{"full":false,"thumbnail":false,"medium":false,"medium_large":false,"large":false,"1536x1536":false,"2048x2048":false,"web-stories-poster-portrait":false,"web-stories-publisher-logo":false,"web-stories-thumbnail":false},"uagb_author_info":{"display_name":"Team Lemonn","author_link":"https:\/\/lemonn.co.in\/blog\/author\/ashu\/"},"uagb_comment_info":0,"uagb_excerpt":"Commercial Paper (CP) is a short-term, unsecured debt instrument issued by companies, primary dealers, and all-India financial institutions to raise funds for working capital needs. It is issued at a discount to face value and redeemed at face value on maturity, with the difference being the return for the investor. What Is Commercial Paper? CP…","_links":{"self":[{"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/glossary\/14212","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/glossary"}],"about":[{"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/types\/glossary"}],"author":[{"embeddable":true,"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/users\/3"}],"version-history":[{"count":0,"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/glossary\/14212\/revisions"}],"wp:attachment":[{"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/media?parent=14212"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}