Non Convertible Debentures (NCDs)
Investors often look for investment avenues that strike a balance between liquidity, risk management, and
attractive returns. Debentures are long-term debt instruments issued by companies to raise capital,
offering investors a predetermined rate of interest over a fixed tenure.
Debentures are generally categorized into two types: Convertible Debentures and Non-Convertible
Debentures (NCDs). Non-Convertible Debentures (NCDs) are debt securities that
cannot be converted into the equity shares of the issuing company. The interest earned on NCDs
depends on the terms and financial standing of the issuer.
NCDs can be subscribed to by individual investors, banking institutions, primary dealers, registered
corporate entities, and other eligible organizations in accordance with applicable regulations.
01
Corporate debt instruments designed to provide regular income over a fixed tenure.
02
Remain debt investments throughout the tenure and are not exchangeable for company
shares.
03
Offer predetermined interest payouts based on the issuer's terms and credit
profile.
Frequently Asked Questions (FAQs)
What is a Non-Convertible Debenture (NCD)?
＋
A Non-Convertible Debenture (NCD) is a type of debenture that cannot be converted into equity shares
of the issuing company. It is a fixed-income instrument where the issuer promises to pay a fixed
interest rate and repay the principal on maturity. NCDs are listed on stock exchanges and held in
demat form.
What is Put Option in a NCD?
＋
A put option in NCD means that the investor has an option to surrender the NCD if he wants to, and
get back his/her principal. The put option provides the investor with a lot of flexibility. If NCD
interest rates go up, and the investor can get better rates from the market, he can exercise the put
option and get back his/her principal which can be invested elsewhere.
What is Call Option in a NCD?
＋
A call option in NCD means that the company has an option to ask the investor to surrender the NCD
in exchange for the principal investment. A call option gives flexibility to the company. If NCD
interest rates go down, and the company can get funds at lower rates from the market, it can
exercise the call option to give the money back and can raise money from the market at lower rates.
Are NCDs safe investments?
＋
Secured NCDs backed by company assets are considered relatively safe, especially those with high
credit ratings (AAA or AA+). However, all NCD investments carry some level of credit risk and
interest rate risk. It is recommended to always check the credit rating and the financial health of
the issuing company before investing.
Is TDS deducted on NCD interest?
＋
No TDS is deducted on interest from listed NCDs held in demat form, as per the provisions of Section
193 of the Income Tax Act. However, the interest income is still taxable in the hands of the
investor and must be declared in the income tax return as per the applicable slab rate.
Can I sell NCDs before maturity?
＋
Yes. Listed NCDs can be sold on the stock exchange (NSE/BSE) before maturity through your demat and
trading account. However, the price you receive will depend on prevailing market conditions,
interest rates, and the credit profile of the issuer at the time of sale. Liquidity may vary
depending on the NCD.
What is the minimum investment in NCDs?
＋
The minimum investment in NCDs is typically one NCD unit, and most NCDs have a face value of ₹1,000
per unit. The minimum application amount in a public issue is generally ₹10,000 (i.e., 10 units). In
the secondary market, you can buy as little as one unit at the prevailing market price.
