What Are Non-Convertible Debentures? Why You Should Choose These Over FDs?

by Shatakshi Gupta

Everybody wants a high return on investments without taking much risk. If you want good returns with the safety of your money, then Non-Convertible Debentures would be the right choice for you. These are comparatively much secure instruments than equities. Besides, NCDs promise a higher rate of return than Fixed Deposits. So, let’s understand about this class of asset.

What is an NCD?

 Non-Convertible Debentures or NCDs are a medium for companies to raise money from the market. The way companies raise money from IPOs, they also raise money from NCDs.  The difference is that the money raised from NCDs is debt. Whereas in IPOs company offer equity. A debt instrument is much more secure than equity because the company is liable to pay the debt even if it is facing losses. Even in case of a default, the company first pays its debt then distribute the remaining amount among equity holders.

 Why NCDs are a good choice?

 You can earn good returns by investing money in NCDs of companies. Generally, they offer higher interest rates than the FDs of banks. Companies also get their NCDs listed on the stock exchanges. However, the volume of NCDs on the stock exchange is very less.

Is every NCD safe?

It is not safe to invest in NCDs of any company. The safety of money invested in NCDs of a company depends on the financial health of the company. Generally, NCDs of bluechip companies are considered safe. This is because the chances of them defaulting on their NCD payments are negligible. Companies raising money through NCD issues are required to get their NCDs rated. Rating agencies give this rating. 

Also read: Appetite For Higher Returns? Then Fund-Of-Funds Is The Right Instrument For You To Invest

Here are some reliable NCD options:

  • NTPC

NTPC’s NCD has a credit rating of AAA. It earns an interest of 8.49% per annum. Interest is paid once a year on 25 March only. NTPC is involved in the sector of electricity and allied activities.

  • Tata Capital

Tata Capital Financial is another AAA-rated NCD. It pays an interest of 8.90% per annum. It pays interest to investors on September 27 every year. It is a Tata group company that does business in commercial finance, wealth management, consumer loans etc.

  • Mahindra & Mahindra Group

Mahindra & Mahindra Finance has been rated AA by CRISIL. Its NCDs get an interest of 7.05% which is paid on 1st April every year.

  • JM Financial

Investors get an interest of 9.11% every year on NCDs of JM Financial.  This interest is paid every month. It is a non-deposit taking company with an AA rating.

  • Indiabulls

Indiabulls issues similar NCDs. It has a rating of AA. It pays an interest of 9.15% per annum. Its interest is credited in the account of investors on 26 September every year. It is a housing finance sector company.

  • India Infoline

India Infoline offers 10% interest on its NCDs. It has a rating of AA. This group is in all sectors. It provides loans for Gold Loan, Home Loan, Business Loan and Microfinance etc.  It was rated AA by CRISIL.

Read more: Your Guide To Mutual Funds

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