Purchase Commercial Papers

The commercial papers are difficult to purchase by individual investors, but it is a widely held indirect investment by money market funds. Understanding what a commercial paper means allows you to assimilate the risks money-market funds take.

A commercial paper is a not insured short-term promissory note (IOU) issued by the largest and renowned financial and non-financial corporations as sources of credit. The commercial paper is sold at a discount form from its face value, and usually with short periods of maturity up to 270 days.

Commercial paper denominations are high, with a minimum range of $5000 up to maximum of $5 million. Commercial papers are sold through dealers or directly by the issuers to investors.

Dealers buy commercial papers to immediately after resell them in large amounts to institutional investors charging for that relatively low margins (1/8 of 1% per annum).

Dealers do not sell them directly to individual investors though these own large amounts ($150,000) to invest. This due to SEC that specifies commercial papers should be sold only to sophisticated investors, and dealers consider every single individual investor as unsophisticated. Consequently individual investors buy dealer papers through brokers, which offer the papers at less quantities ($25,000 and over), and charge commissions for that which could be very significant in small purchases.

Individual investors can purchase commercial papers directly from the issuers in relatively small amounts ($25,000).

By phoning or writing to well-known finance companies such as General Motors Acceptance Corp. (GMAC), Chrysler Financial Corp., Sears, etc. you can find out their terms, rates and maturities.

Commercial papers also may be purchased through a bank for which the bank charges a fee for its service.

Beginner Money Investing Certificates of Deposits Commercial Papers Repurchase Agreements