What Is Non Convertible Debenture?

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.