Investors are forever on the lookout for improved and more sustainable schemes. The market volatility sometimes makes some plans overnight stars while at other times even traditional and trusted investments lose their sheen. Non Convertible Debenture or NCD is a scheme that proved to be a dark horse as they started delivering smaller but steady returns over time.
Like traditional corporate FDs, NCD too is a fixed-income investment with a specific term and interest income. Companies issue them to raise funds, and evidently you cannot convert it to equities. To make up for this limitation, investors enjoy supreme returns, liquidity, low risk and tax respite as opposed to convertible debentures.
Companies provide NCDs through open issues, which the potential investors can buy within specific periods. There are options to buy NCDs from stock markets.
b. Credit rating
Only companies with good credit rating can have the authorization to issue NCDs. Credit rating agencies also rate NCDs itself. Ratings are subject to revisions regularly.
The higher credit rating an NCD has, the lesser interest it offers. Almost every NCD promises dual earning potential – growth-based and interest-based or cumulative opportunities.
d. Return rates
Usually, NCDs give you higher returns (10%-11%), compared to corporate FDs, bank FDs and Government bonds (max 8%).