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.
🔍 Key Features of NCDs
Fixed Returns: Typically offer 8%–11% 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.
💰 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.
🧾 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).
⚖️ 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.
💡 Always prefer highly rated secured NCDs (AA or AAA) to minimize risk.
📈 Who Should Invest in NCDs?
Retirees needing regular income.
Investors seeking higher returns than FDs with moderate risk.
Professionals and HNIs diversifying debt portfolio.
🛒 How to Invest in NCDs?
Primary Market: Apply during new issue via demat account.
Secondary Market: Purchase listed NCDs on NSE or BSE.