What are Non-Convertible Debentures?
We invest in financial instruments to maximise the value of our hard earned money and hence we search for safer options of investment. However, the safe options give lower returns. The investment options that give us good returns are the ones that are very volatile, dissuading many investors. Non-convertible debentures (commonly referred to as NCDs) are financial instruments that hit the golden mean of giving fixed returns and relatively high returns. It is this ideal combination which makes NCDs such popular investment options.
NCDs are debt instruments which have a fixed time period of investment. As the name suggests, non-convertible debentures cannot be converted into the issuing company’s equity unlike convertible debentures which have that facility. Investors should ensure that they look at the issuing company’s credit rating like CRISIL, ICRA, Brick Works, etc. It ensures high degree of safety regarding timely serving of financial obligations. The higher the rating, the lower risk of credit default by the company.
What are the types of Non-Convertible Debentures?
1. Unsecured NCDs
These are riskier NCD options which are not backed in case the company does not pay. In unsecured NCDs there is no way to recover the money
2. Secured NCDs
These are relatively low risk NCDs which have the backing of the company assets. In case the company fails to pay the money can be recovered if you invest in a secured NCD.
What are the benefits of NCDs?
1. Capital Gains
NCDs are listed in stock markets like the NSE and BSE helping investors derive capital gains from selling them when sold at a premium
2. Tax Benefits
When the NCDs are listed there is no Tax Deduction at source on interest on NCDs.
Since NCDs are backed by agency ratings, they are relatively more secure than other investment options
4. High Interest Rate
Compared to fixed deposits which have a return of around 6-7%, NCDs have a return of almost 11% which is sizeable for a fixed return instrument. These can be paid out at monthly or quarterly intervals but annual or cumulative (where interests are reinvested) give better returns
5. Good Tenure
The pay-outs could be given on the monthly quarterly or annual basis depending on the NCD the investor has chosen to invest in. Generally, NCDs have a tenure option of 26 months, 38 months and 60 months
Non-convertible debentures are a lucrative yet safe option (especially secured NCDs) for investors who do not want to leave their investments to the vagaries of the stock market. Indiabulls Consumer Finance Limited has opened a public issue of Secured Non Convertible Debentures. The NCD issued has an attractive coupon rate of up to 11%. It has options for 26 months, 38 months and 60 months maturity. The minimum application size is Rs. 10,000. The Issue is rated a BWR AA+|CARE AA STABLE rating, which indicates high degree of safety regarding timely serving of financial obligations. The issue has also proposed for the NCDs to be listed on both NSE and BSE. When the NCDs are listed there is no Tax Deduction at source on interest on NCDs.
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