What is NCD, Non-convertible Debentures?

Non-convertible debentures are financial instruments used to raise long-term funds by companies through a public issue.

To make the offering more attractive, due to non-convertibility feature of the instrument, traders are usually given a higher rate of return compared to convertible debentures.

There are two forms of NCDs (Non-convertible debentures)

  • Secured NCD
  • Unsecured NCD

 Secured NCD offer lower interest rates compared with unsecured ones.

Secured NCD pay interest, based on the pre-defined tenure, it could be on a monthly or a quarterly or an annual basis.

There is another option offered by NCD, if you want to invest in long-term debentures, you can go for cumulative option where the interest earned is reinvested and paid at a maturity date.

What are Benefits of NCD (Non-convertible debentures)?

NCDs offer various other benefits to the owner which are discussed herewith:

Better return on your investment compared to other stocks: Secured NCDs always provide a high NCD interest rate to their traders.

Flexible exposure to different companies: While other stocks are more speculative and have high risks, NCD Investments balance your investment portfolio while providing diversification with income security.

Tax saving option: No tax is deducted at source as it happens in other stocks. Companies abide by the law as per the provisions of Sec 193 of the IT Act.

Option to close at will: You are not bound by any timeframe. You are free to sell NCD investments on stock exchanges or exercise the Put/Call option anytime from anywhere.

Safety of investment: Unlike stocks which are controlled by different set of companies. NCDs (Non-convertible debentures) are issued companies which having a better credit rating as per specified norms laid down by RBI for the issuance of NCDs. This makes it secure compared to other stock options.

Short-term period: There are also options to invest in short-term NCDs. In India, these type of issued NCDs have a minimum maturity of 90 days.

Long-term investment: Compared to savings and other lending options. Long-term NCD options offer higher return on long term investments. The maturity period of such issued NCDs range from 5 years to 20 years.

Who should invest in NCDs (Non-convertible debentures)?

NCDs are dependent on share market trading performance. Investment in NCDs are good for individuals who are looking for regular stream of income. It also helps in diversifying the debt portfolio while securing better returns than Bank Fixed deposits.

NCDs are issued by companies at a certain face value. Post transaction with the lenders, they are traded in the stock exchanges.

A person interested in NCDs can use either of two options: subscribe when the offer is on or buy the NCDs from the open market. NCDs are publicly traded at the National Stock Exchange of the Bombay Stock Exchange so finding long-term secured NCDs is always easy.

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