An NCD (Non-Convertible Debenture) is a fixed-income investment instrument issued by companies to raise long-term capital. As the name suggests, these debentures cannot be converted into company shares and remain debt instruments throughout their tenure.
๐ Key Features of NCDs
Fixed Returns: Typically offer 8%โ11% annual interest, higher than traditional FDs.
Tenure: Usually ranges from 1 to 10 years.
Secured or Unsecured: Secured NCDs are backed by assets; unsecured carry more risk.
No Ownership Rights: You lend to the company, not invest in its equity.
Exchange-Traded: Most NCDs are listed on NSE/BSE for liquidity.
Credit Rating: Assigned by agencies like CRISIL, ICRA, or CARE.
๐ฐ Why Invest in NCDs?
Benefit
Description
Higher Returns
Offers better yield than fixed deposits or savings accounts.
Regular Income
Interest can be paid monthly, quarterly, or annually.
Predictable Pay-out
Great for those seeking stable and timely cash flows.
Diversification
Adds safety to your investment portfolio.
Liquidity
Listed NCDs can be sold in the secondary market.
๐งพ Types of NCDs Based on Pay-out
Cumulative NCDs: Interest paid at maturity along with principal.
Non-Cumulative NCDs: Interest paid periodically (monthly, quarterly, or yearly).
โ๏ธ Risks to Consider
Credit Risk: Risk of issuer defaulting on payment.
Liquidity Risk: May not be easily tradable in the market.
Interest Rate Risk: NCD value may drop when interest rates rise.
๐ก Always prefer highly rated secured NCDs (AA or AAA) to minimize risk.
๐ Who Should Invest in NCDs?
Retirees needing regular income.
Investors seeking higher returns than FDs with moderate risk.
Professionals and HNIs diversifying debt portfolio.
๐ How to Invest in NCDs?
Primary Market: Apply during new issue via demat account.
Secondary Market: Purchase listed NCDs on NSE or BSE.