Non convertible debentures (NCD) are fixed-income instruments, usually issued by high-rated companies.
Features of NCDs
Issuance: Companies provides NCDs through open issues, which the potential investors can buy within specific period. There are options to buy NCDs from stock market.
Credit Rating: Only companies with good credit rating can have the authorization to issue NCDs. Credit rating agencies also rate NCDs itself. Ratings are subject to revisions regularly.
Interest: The higher credit rating an NCD has, the lesser interest it offers. Almost every NCD promises dual earning growth based and interest-based or cumulative opportunities.
Return Rates: Usually, NCDs give you higher returns, compared to corporate FDs, bank FDs and government bonds.
Types of NCDs
Secured NCDsA
secured NCD is one that is backed by company's assets. In case the company fails to pay, investors can claim payment through liquidation of assets.
Unsecured NCDs
An unsecured NCD is one that is not backed by the company's assets. As a result, they are riskier than secured NCDs.
Benefits of investing in NCDs:
Higher interest rate as compare to Fixed Deposits.
No lock in period, Investors can sell on exchanges.
TDS is not applicable.
Easy to handle. Invest though a demat account.
Disadvantages of investing in NCDs
Credit Risk involves.
Liquidity on Stock Exchanges is subject to meet counter Party and less liquidity compare to Equity Stocks.
