Non-Convertible Debentures (NCDs) - Features, Benefits
Diversification is an important strategy for prudent investing in the world of investments. Allocating a portion of your portfolio to debt instruments is a great step to maintaining balance. Debt instruments Non-Convertible Debentures (NCDs) provide fixed income and stability, which balances the volatility of equity or market-based instruments. Debt allocation stabilizes your portfolio during rough patches of the market and helps in building a cushioned and resilient portfolio while keeping risk in check.
Understanding Nonconvertible Debentures(NCDs)
Non-convertible Debentures are the best way to be exposed to debt. Companies use NCDs to raise money. NCDs typically offer higher returns, which appeals to investors looking for fixed returns with low levels of risk.
Investors buy Non-Convertible Debentures with a fixed face value, and until maturity, they receive regular interest payments, for example semi-annually or annually. When the debt matures, the issuing company pays the investor back the principal amount, fulfilling the debt commitment.
Non Convertible Debentures are a desirable investment option due to their many features and attributes
(i) Fixed Returns : The guarantee of fixed returns throughout the investment period is one of the main draws of NCDs. Investors who are risk averse and want steady income will find this steadiness appealing.
(ii) Non-convertibility : Non-convertible debentures cannot be converted into equity shares, in contrast to convertible debentures. Investors know in advance what their returns will be.
(iii) Secured : NCDs are of two types secured and unsecured. In case of secured nonconvertible debentures (NCDs), the issuer pledges a specified value of assets as collateral or security. In the event of adverse circumstances leading to the company's inability to meet its obligations towards NCD holders, these assets are utilized to fulfill such obligations.
(iv) Credit Ratings : Non Convertible Debentures get their credit ratings from rating agencies which indicate the creditworthiness of the issue and issuing corporation. These ratings play a crucial role in helping investors make informed decisions. Higher-rated issuers typically offer lower interest rates, reflecting the lower risk associated with their debt.
(v) Maturity Period : NCDs have set maturities that can be anywhere from short to long-term. Investors can select a maturity period based on how well it fits their financial objectives and investment horizon.
(vi) Liquidity : Non-convertible Debentures provide a certain level of liquidity through secondary markets where investors can purchase and sell their NCD holdings, while not being as liquid as equities.
How NCDs are different from traditional fixed deposits
| Particulars |
NCDs |
Fixed Deposit |
| Returns |
Offer Fixed returns which are generally higher than FDs . |
Offer Fixed returns which are not very attractive and less than NCDs . |
| Liquidity |
Offer higher liquidity than FDs as they are listed in secondary markets. |
Offer lower liquidity as once FD is booked you cannot sell it or withdraw money without charges. |
| Penalty at Withdrawal before Maturity |
If you sell the NCDs in the secondary market before maturity you pay no penalty. |
If you withdraw the money before maturity, you have to pay a penalty. |
| Capital Gains |
NCDs offer the possibility of making a capital gain if the interest rates in the market go down. |
FDs don’t have any possibility of making a capital gain. |
| Flexibility |
NCDs offer a wide variety of tenures, interest rates, and issuers to choose from, this provides investors with flexibility in investment decisions. |
FDs offer no such flexibility to the investors as investors have to choose from limited options. |
How to Purchase Non-Convertible Debentures?
The public issue of Non-Convertible Debentures is for a specific time period, and it is initiated by the issuing company. Then NCDs are listed on the stock exchange as specified by the company.
You can invest in them through any registered broker or medium when Non-Convertible Debentures are listed on the stock exchange which gives you access to the stock exchange.
Final Thoughts: Navigating the Landscape of Non-Convertible Debentures with RR Finance :
Our team at RR Finance carefully examines the NCD market to find possibilities that fit the risk profiles and investment goals of our clients. We give our clients the tools they need to make wise decisions about Non-Convertible Debentures investments with our individualized approach to investment advice. RR Finance provides specialized solutions to assist you in reaching your financial objectives.
Get in touch with us right now to start your path to financial success with assurance and confidence.
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Frequently Asked Questions (FAQs)
Non-Convertible Debentures (NCDs) are fixed-income securities that businesses issue to raise funds. They cannot be exchanged for stock in the corporation that issued them.
Fixed interest rates, a predetermined tenure, agency credit ratings, and greater yields than traditional savings products are some of the key characteristics of NCDs.
The issuing company's credit rating determines how safe NCDs are. Investments in Non-Convertible Debentures with higher ratings are thought to be safer.
Benefits of Non-Convertible Debentures include increased interest rates, consistent interest income, and a variety of investment choices.
Yes, investors can obtain liquidity by trading NCDs listed on stock exchanges in the secondary market.