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Non-Convertible Debentures: Definition, Type and Benefits

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What are Non-Convertible Debentures (NCDs)?

Non-Convertible Debentures (NCDs) are a debt instrument issued by corporates through a public issue with the aim of raising capital for long-term. It has fixed term for maturity and people buying NCDs get predefined interest declared at the time of issue.

Some debentures feature the option for conversion into shares after a certain point of time. It is done at the solo discretion of the NCD owner. But in case of NCDs, it cannot be covered and so it is called non-convertible.

Who issues Non-Convertible Debentures (NCDs)?

Non-Convertible Debentures (NCDs) are generally issued by the large companies. The public issues are announced to welcome investors to buy NCDs providing periodic. It is classified in secured NCDs and unsecured NCDs.

Types of NCDs

NCDs are considered one of the safe options for investment. It can be chosen for short term or long-term investment. It is known to provide many advantages and preferred by the retail investors in the market. There is no maximum limit for the number of units you wish to purchase. The NCDs are issued to you subject to its availability.

You can keep visiting BondsIndia.com frequently to grab the opportunity to buy NCDs of different companies doing well in the market. You can earn good by investing in the NCDs of a good performing company.

NCDs are classified majorly into the below two types:

Secured NCDs
It is considered safer in comparison to unsecured NCDs because secured NCDs are backed by assets of the company issuing the Non-Convertible Debentures. Investors in the condition of company failing to pay on time can recover their due payment by liquidating the assets of the company. The rate of interest offered on NCDs are generally low.

Unsecured NCDs
Unsecured NCDs as the name suggests are riskier as it do not come to you with company backed assets. In case of unsecured NCDs if the company fails to make payment, unsecured NCD holders has no choice then to wait until they receive their due payments. The interest on unsecured NCDs is higher in comparison to secured NCDs.

Features of Non-Convertible Debentures (NCDs)

Interest - Non-Convertible Debentures (NCDs) come with different maturities. You can earn a high interest rate ranging from 7% to 10% if the NCDs are held until maturity. It provides you the option to earn interest income at different interval. You can get the interest pay-out monthly, quarterly, half-yearly or annually depending on your need. You do have the option to receive cumulative interest payment. If you can take risk, unsecured NCDs can offer you higher rate of interest.
Taxation - NCDs do carry tax implications. It will be applicable to you depending on the tax bracket you fall into. NCDs if sold within a year STCG (short-term capital gains) as per the income tax slab rate will be applicable. LTCG (Long-term capital gains) at 20% with indexation will be applicable if NCDs are sold after a year or before the maturity date.
Credit rating – NCDs come with different credit ratings. The higher the rating the lower is the risk. You can choose to buy NCDs considering credit rating provided by the credit rating companies in India like CRISIL, CARE, etc. Credit rating feature help you take better investment decisions.

Why Invest in NCDs in India?

Your decision to invest in NCDs can help you avail many advantages. You can take the benefit of higher interest rate, cumulative or periodic return, and minimal risks.

Advantages of Investing in NCDs

Relatively Safe

Investing in secured NCDs can be a better option for you. The risk in it is minimal as it is backed by company’s assets. If you are a risk-averse individual, it is better to buy secured NCDs.

Higher Interest

If you wish to earn higher rate of interest, choose to buy unsecured NCDs. You can earn interest up to 10% if you hold your Non-Convertible Debentures (NCDs) until maturity.

Low Risk

NCDs also come with credit rating. Investing in secured NCDs with AA+ or above rating is safe. In case of the issuing company fails to pay the due payment, you can go for the liquidation of the company assets to recover your outstanding payments.

Who Should Invest in NCDs?

Buying NCDs can be a good choice for the investors looking for investment option with minimal risks other than fixed deposits.

Consider investing in Non-Convertible Debentures (NCDs) with higher credit rating. Prefer secured NCDs if you can adjust with low interest income. Unsecured NCDs offer higher rate of interest but it does not have the backing of company’s assets.

There are many options for you to buy NCDs in India. For the hassle-free investment in NCDs, visit bondsindia.com frequently. You can choose from various available Non-Convertible Debentures (NCDs) after considering the essential factors.

Choose the issuing company, number of NCDs, and complete the bidding process.

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Frequently Asked Questions

What are the types of Non-Convertible Debentures (NCDs)?

Non-Convertible Debentures (NCDs) are categorised in two types – Secured NCDs and Unsecured NCDs.

Why to invest in NCDs?

Investment in NCDs can help you earn good returns as interest payable on cumulative or periodic basis. Also, secured NCDs are safe in comparison to other investment options.

Do NCDs come with credit rating?

Yes, NCDs do come with credit rating awarded by the various rating agencies to help investors make wise investment decisions.

What is the interest I can earn in case of investment in NCDs?

NCDs are known to yield interest ranging from 7 to 10%.

Can I withdraw my NCDs before maturity?

No, you cannot withdraw NCDs before maturity. It can be sold in the secondary market.

What things to consider prior to investing in NCDs?

It is good to consider background of the company, credit rating, level of risk, returns, and maturity prior to investing in NCDs.

Why choose BondsIndia to buy NCDs?

BondsIndia is a secure and user-friendly online platform chosen for offering a variety of fixed income securities, NCDs, bonds, and more.