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A Non-Convertible Debenture (NCD) is a fixed-income investment issued by corporations to raise capital. Unlike convertible debentures, NCDs cannot be converted into equity shares and provide fixed interest payments to investors over a specified period.
How NCDs Work
Issuance – Companies issue NCDs to raise funds, specifying the interest rate (coupon rate) and maturity period.
Investment by Public – Investors buy these NCDs, essentially lending money to the company.
Fixed Interest Payments – Investors receive periodic interest payments (monthly, quarterly, annually, or at maturity).
Redemption at Maturity – At the end of the term, the company repays the principal amount to investors.
Listing on Stock Exchanges – Some NCDs are listed on exchanges, allowing investors to trade them before maturity.
Merits of NCDs
✅ Higher Returns – Typically offer higher interest rates compared to Fixed Deposits (FDs) and government bonds.
✅ Fixed Income – Provides stable and predictable interest earnings.
✅ Liquidity – Listed NCDs can be traded in the secondary market.
✅ Secured vs. Unsecured Options – Secured NCDs are backed by company assets, reducing risk.
Demerits of NCDs
❌ Credit Risk – If the issuing company defaults, investors may lose capital (especially with unsecured NCDs).
❌ Interest Rate Risk – Market rates may rise, making NCD returns less attractive.
❌ Liquidity Risk – If not actively traded, selling before maturity may be difficult.
❌ No Equity Upside – Unlike convertible debentures, NCDs do not offer stock appreciation benefits.
Guarantee on Returns & Capital Protection
No Guarantee : NCD returns depend on the company’s financial health.
Secured NCDs: Offer some protection as they are backed by company assets.
Unsecured NCDs: Higher risk, as there is no collateral backing.
Credit Ratings: Check ratings from agencies like CRISIL, ICRA, or CARE before investing—higher ratings indicate lower risk.
