In recent times, commercial paper debts have come to light to many investors. This is simply due to the surge in interest amidst investors to add these debts to their investment portfolio. There are numerous companies that are issuing these paper debts in the financial market.
But, how do these debts benefit the company? And why are investors so keen on adding these funds to their investment portfolio? Know about commercial paper debt, its benefits by reading the article below:
What is commercial paper?
Commercial paper debts are short term debts issued by companies in order to raise funds to cover their immediate liabilities, such as purchasing inventories, paying suppliers or even for staff salaries, when they do not wish to rely on the banking system. These funds are however for short tenures that generally range between one to six months.
Commercial paper debts are not backed with the company’ assets. This makes investing in such debts quite risky. Due to this, investors should be careful while planning to invest in commercial paper debts and should check the company’s reputation and current status in the market.
The returns of commercial paper debts attract many investors into investing in them. The paper is usually issued at a price lower than its face value and receives the entire face value of the debt when the debt matures. This means that the difference between the face value and discounted amount is the investor’s rate of return.
Advantages of commercial paper
For the Investor
● Low risk
In most cases, only reputable and creditworthy companies such as Cgs Cimb Securities issue commercial paper debt. These companies have a good reputation in the market and generally do not indulge in scams. Hence, these are generally considered as low risk investments as they are comparatively safer and well-reputed in the market.
● Short tenure
As mentioned earlier, commercial paper debts are usually issued for a short tenure between one to six months. This makes the investment a useful place for investors to place their capital that will not be required for the next few months. Moreover, these debts pay a higher interest than fixed deposits at banks.
For the company
● No registration required
As commercial paper debts are only issued for a short tenure it does not need to be registered under the monetary authority. This saves a lot of capital for the company that would rather be spent while availing funds through the banking system. Cgscimb securities are a good example as they issue debts that are not registered under the monetary authority of Singapore and save up a good amount of capital through it.
● Quick funding
Since the demand for these debts have increased in recent times, the funds are readily available to the companies. These funds can be used to deal with the company’s immediate expenses and settle the amount once the debt matures. Many companies opt to choose this form of funding rather than approaching the bank for funds.
Example of Commercial Paper
There are many debts that an investor can invest into to keep their funds safe and profit when it matures. Cgscimb securities is one such commercial paper debt that has been in the radar and a top choice for many investors. Investors can invest in these securities through investment platforms such as ADDX or by directly getting in touch with the company.
Commercial paper debts are a good investment choice, however, investors should be careful while investing and conduct their in-depth research on the company. One should invest in these debts only if the invested capital is not required till its maturity period.
We hope this article helps you understand all about commercial paper debts and how it could positively affect your investment portfolio. Thank you!
