Commercial Paper
A short-term unsecured promissory note issued by a company at a discount to face value.
Formula
Yield = [(Face Value - Price) / Price] x (365 / Days to Maturity) x 100
Unit
%
In depth
Commercial paper is unsecured, short-dated corporate borrowing, issued in India for 7 days to one year with a minimum of ₹5 lakh, and it requires a credit rating. Its role in funding is the source of its systemic importance: companies use it as cheap rolling finance, and when the market refuses to roll it, a solvent company can face an immediate liquidity crisis. That is precisely what happened to several Indian non-banking finance companies in 2018. It is a major holding in liquid and money market funds, which is how the risk reaches retail investors indirectly.
Worked example
A 90-day paper of ₹5,00,000 face value issued at ₹4,91,500 yields (8,500 / 4,91,500) x (365 / 90) x 100 = 1.729% x 4.056 = 7.01% annualised.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Commercial Paper” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.