Non Convertible Debentures (NCD)

Debentures are long-term financial instruments which acknowledge a debt obligation towards the issuer. … The debentures which can’t be converted into shares or equities are called non-convertible debentures (or NCDs).

An NCD is a type of loan that is issued by a company, which cannot be converted to equity. They are higher risk in nature when compared to a bank fixed deposits, since they run the risk of the issuer defaulting on repayments. Secured NCDs are safer than unsecured ones, but offer higher returns as well.

NCDs are taxed at your slab rate, which means if you are in the highest tax bracket, the interest you earn will be taxed at 30%. Hence, your post-tax returns will be much lower. NCDs can work for those in the lower tax category or those with no taxable income

Debentures are long-term financial instruments issued by a company for specified tenure with a promise to pay fixed interest to the investor. Debentures are of two types, namely convertible debentures and non-convertible debentures (NCD). Convertible Debentures get converted into shares either equity or preference share in the company’ capital. Non-convertible debentures (NCD) are those which cannot be converted into shares or equities. NCD interest rates depend on the company issuing the NCD. On maturity, principal amount along with interest will be paid.

Agencies such as CRISIL, ICRA, CARE and Fitch Ratings give ratings to the company that raise money through NCD.

NCD can be secured or unsecured. Secured NCDs are backed by the issuer company’s assets by creating a charged on the assets to fulfil the debt obligation. Unsecured NCDs are not backed by the issuer company’s assets. In case of company fail to pay investor can claim payment through liquidation of assets where as unsecured NCDs are riskier than secured

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