Gold Near Record High On Recession Warnings

Delhi-NCR To Get 300 More EV Charging Stations In 6 Months

NCD A Better Alternative For Fixed Deposits

Written by : Info Box Team
  • thumbnail_1565955863_9030538.jpg

NCDs have been buzzing in the market quite some time. Many companies are now making these available, that too for high interest rate. Interest rates on fixed deposits have been declining from the last 3-4 years. Against this backdrop, many high-interest NCDs are considered as an alternative investment.

Non Convertible Debentures (NCDs) are a type of long-term financial instruments issued by companies to raise capital funds with a promise to pay fixed interest. Interest on these bonds will be deposited directly to your bank account.

Some debentures are likely to be converted into shares after a certain period of time. It depends on the discretion of the person who purchased the respective loan documents. However, this is not possible in the case of non-convertible debentures, unable to convert them into shares.

Types of Debentures

Convertible Debentures

As the name suggests these debentures can be converted into equity shares and does posses some security in case of bankruptcy. Debenture holder will be get paid his due even by selling the assets company.

Non-convertible Debentures

These debentures cannot be converted into shares and doesn't have any authority over company properties. NCDs expose investors to risk but less compared to equity market.
How to buy NCD's

NCDs will be listed on the stock markets and exchanges. Application must be made through authorized agents, banks or stockbrokers. Investor needs to hold a demat account and rules for NCD are similar to IPO. Both offline and online Applications are allowed.

Company Name

Opening date

Closing date

Price

Effective yeild upto

Shriram Transport Finance Company Limited

 

Jul 17, 2019

 

Aug 16, 2019

 

1000

 

9.70% p.a

 

Tata Capital Financial Services Limited

 

Aug 13, 2019

 

Aug 23, 2019

 

1000

 

8.64% p.a

 

India Infoline Finance Limited

 

Aug 06, 2019

 

Aug 30, 2019

 

1000

 

10.50% p.a

 

Indiabulls Consumer Finance Limited

 

Jul 31, 2019

 

Aug 30, 2019

 

1000

 

10.50% p.a

 

JM Financial Products Limited

 

Aug 06, 2019

 

Sep 04, 2019

 

1000

 

10.40% p.a

 

Factors to be considered while investing in NCD

Compapny Financial History

Have a brief insight about the company you want to invest in. Has the company already issued any NCDs? It is understood that the companies that issue the issued bonds are better off without any trouble. If a company is defaulted to its NCD holders, It is better not to go to that company.

Credit Rating

The main attraction for choosing NCDs is high interest. However, this should not be the only reason, investor should consider whether high-interest companies have a good rating or not. Look at the ratings given by agencies like Crisil, Icra and Care to the NCD. Companies will be given ratings based on their performance and ability to repay debts. High-rated bonds can be trusted.

Investment Term

The company issues these NCDs to raise working capital and pays a pre-determined interest during this period. It can be monthly, three months, or even once a year or payable after expiration.

Returns

Return percentage is a measure of how much we have invested in a given period of time. The higher it is, the more attractive it is to investors. At present they offer higher interest rates than corporate fixed deposits.

Term Cancellation

NCDs are registered in the stock market, it is possible to sell them there if needed. However, it may not be easy to withdraw the investment immediately. Getting out early is not easy. So better to invest with the money that you don't need it till the end of the NCD period. Otherwise it's better to look for an alternative.

Tax on Returns

Individuals must show interest earned on NCDs combined with their income. Then you have to pay income tax, depending on the applicable tax rate. However, there is no tax deduction at the source end (TDS).

Though NCD comes under fixed income securities, it has risks like business risk, interest rate risk, inflation risk, but less when compared to risk involved in equities.