NCD
Key Features
What is NCD ?
NCD stands for Non-Convertible Debentures. In financial services, NCDs are debt instruments issued by companies to raise long-term funds from the public.
Here are some key points about NCDs:
- Debt Instrument: The issuing company takes loans from investors through NCDs, Investors receive a fixed interest rate for a specific period as a return.
- Non-Convertible: NCDs are not convertible into equity shares of the issuing company, unlike convertible debentures. Throughout their tenure, they remain in debt.
- Risk and Returns: NCDs have different levels of risk depending on the issuer’s credit rating. Higher-risk NCDs typically offer higher interest rates to compensate investors for the additional risk.
- Tenure and Liquidity: The duration of NCDs is fixed, usually ranging from a few months to several years. They are tradable on stock exchanges, providing liquidity to investors who may want to exit before maturity.
- Taxation: Interest income earned from NCDs is taxable as per the investor’s income tax slab. TDS (Tax Deducted at Source) is applicable if the interest income exceeds a certain threshold.
Overall, NCDs provide a way for companies to raise capital while offering investors fixed-income opportunities, although the risk levels differ based on the issuer’s creditworthiness.
Why should invest in NCD ?
Investing in Non-Convertible Debentures (NCDs) can be attractive for several reasons:
- Fixed Returns: Investors can find stability by investing in NCDs, which offer a predetermined interest rate and regular income.
- Higher Interest Rates: The interest rates of NCDs are usually higher than those of traditional savings accounts or fixed deposits, particularly for companies with lower credit ratings.
- Diversification: By adding a fixed-income component, NCDs can add diversity to your investment portfolio and balance out the volatility of equities.
- Flexibility: Investors can choose from different tenure options depending on their investment horizon.
- Liquidity: Many NCDs are listed on stock exchanges, allowing investors to sell them in the secondary market if they need to access their funds before maturity.
- Regular Income: NCDs can provide periodic interest payments, which can be beneficial for regular income needs.
- Tax Efficiency: Depending on the regulations in place and the structure of the debenture, certain NCDs can provide tax advantages, such as tax-free interest.
Conclusion
Overall, NCDs can be a good choice for investors looking for higher returns and regular income, with the added benefit of liquidity in some cases. However, it’s important to consider the credit risk associated with the issuing company.