Invest In NCD Which Offers Fixed Return
What Is NCD?
NCD, also known as Non-convertible debentures, is a fixed income product that offers far better returns when compared with Fixed Deposits or convertible debentures.
NCD is a debt instrument and popularly used by the NBFCs and other companies to raise long-term capital through the public issue of shares.
Investing in NCDs helps you earn better returns, offers the liquidity, is a low-risk instrument and offers tax benefits when compared to convertible debentures.
Things to consider before
investing in NCDs
The factors included in understanding the NCD meaning
stretch to learning about
the ideal process
of investing in NCDs. Here are some things to consider
before investing in
Non-Convertible Debentures (NCDs) in India
Bonds’ fixed income market can provide you returns as high as 9 – 10% per annum or more. Investments in Bonds and Debentures are more rewarding and reliable mode of growing your money than the existing options of fixed deposits and mutual funds.
Safe investments like bonds and debentures, help you to stabilise your portfolio and helps you to hedge your risk against other investments.
The Coupon or Coupon rate is the interest rate paid by fixed-interest security such as Bond/ Debenture. It is the annual payment towards the face value of a bond. This interest will be credited to the your accounts at set predefined frequency
For interest earned from Taxable Bonds, the earnings are taxable. However, for interests earned from Tax-Free Bonds, the earnings are 100% tax-free. Also, capital gains earned from selling any Bond (taxable and tax-free) before maturity are subject to capital gains taxation rules.
Types Of NCDs
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Secured NCDs
They are one of the safest NCD options backed by the issuing company’s assets. Investors can seek payment through the liquidation process in case the company fails to pay the interest and repay the principal amount. The backing provides investment protection to investors and ensures their principal amount is safe. -
Unsecured NCDs
Unsecured NCDs are riskier than secured NCDs as they are not backed by the issuing company’s assets. In case the company defaults on its obligations to pay interest and repay principal, the investors can not seek payments through the liquidation process. The investors can only wait until the company has enough cash flow to fulfil payment promises.
Start Investing In 3 Simple Steps
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01
Complete KYC
Upload Your Documents Online -
02
Choose Bonds
Select Bonds That Matches Your Investment Goals -
03
Make Investment
Pay Online and Receive Bond Units In Your Demat Account
Tips for Investing in NCDs
To ensure that your NCD investment is successful, here are some tips for investing in NCDs:
Diversification: Non-Convertible Debentures in India are issued by numerous companies that belong to different sectors. Allocate the preferred investment capital across numerous NCDs of different companies to ensure you limit your losses if any.
NPA Provision: Non-Performing Assets (NPAs) indicate the debt obligation of a company where the company has not paid agreed-upon interest and principal repayments. Invest in a company’s NCD after ensuring that it has set aside 50% of its assets for NPAs. Any drop in this percentage would mean a decline in the financial condition of the company.
Selling Time: An NCD is the most in-demand when the interest is due to be paid by the issuer. NCD holders who are looking to sell it in the secondary market to make profits should hold until the interest is due to find the highest liquidity. It is at this time that you can make the highest profits.
Debt Level: One of the most important tips for investing in NCDs is to run a detailed background check on the NCD issuing company, especially its asset quality. If the company has unsecured loans amounting to more than half of its overall assets, you should skip investing in the NCD.