NCDs have some inherent risk associated which an investor has to take into consideration before making any investment decision. The biggest risk is the credit risk. The company can default on the future payment and if it is unsecured NCD, an investor does not have any recourse.

What is NCD used for?

The debentures which can’t be converted into shares or equities are called non-convertible debentures (or NCDs). Description: Non-convertible debentures are used as tools to raise long-term funds by companies through a public issue.

How can I buy a non-convertible debenture?

NCDs are initially issued by the company in the exchange and later traded in the secondary market. So, you can either choose to subscribe when a company announces NCD or buy later in the secondary market when it is trading. Listed companies issue NCDs in BSE and NSE, where these instruments are also publicly traded.

Are non-convertible debentures deposits?

Nonconvertible debentures are unsecured bonds that cannot be converted to company equity or stock. Debentures are issued through brokers and syndicates. Fixed deposits are a type of product offered through a bank.

Who should invest in non convertible debentures?

Individual investors with moderate-to-high risk appetite can look at investing in non-convertible debentures (NCD). Two non-banking financial companies—Piramal Capital and Housing Finance (PCHFL) and IIFL Home Finance — have come out with their NCD issues.

Is NCD tax free?

All STCG sale of NCDs are taxed at normal rates according to the taxpayer income tax slab, this is because the income made will be added to their income tax return. However, bonds and debentures do not come with the indexation benefits, which means LTCG from NCDs are taxed at 10 percent.

Is NCD a liquid?

As NCDs are not liquid, it is not easy to sell the bonds even in the secondary market as trading remains very thin. Investors should look at secured NCDs which will reduce the risk significantly in case of a complete default.