Secured NCDs are risk free when compared to company FDs
Non-Convertible Debentures (NCD) is nothing but a debt paper issued by the company in order to raise money from the public, that accounts for a fixed income to the investor. Here, the investor gets a fixed interest for his investments over a company. Like the name suggests, the debentures in NCD cannot be converted into shares of the issuing company under investment. On maturity of NCD the principal amount and the interest gained are paid off to the investor. Unlike FD’s the NCD is issued by corporate sector or a Non Banking Financial Company (NBFC). It is of two types Secured NCD with a lower interest rate or Unsecured NCD with varying interest rates.
In fixed deposits, the inflation rate may affect the returns of the investor; NCD’s provide a lower credit risk making it highly secure when compared to fixed deposits. In case of any non-remittance by the company or if the company is facing dismissal, then the corporate Fixed deposits will have no claim over the company’s assets. But on the other hand assets are held by trustees for secured NCD’s. This makes the NCD’s safest to invest, than fixed deposits.
Reasons for opting NCD over Fixed Deposits
- The risk-return ratio is higher for secured NCD. Thus the investors get an assurance from their investments.
- Unlike FD’s that are available for a maximum of 5 to 7 years, NCD’s can be invested starting from 2 years to as much as 20 years.
- NCD’s are not subjected to Tax Deduction at Source (TDS). Returns from fixed deposits are put through tax deductions, but in NCD no such tax deductions are applicable as the securities are issued in a dematerialized form and are listed on the stock exchange.
- NCD offers high interest rates of 10-12% when compared to FD’s. The interest rate may vary according to the company’s yield and market conditions, but assured interest is possible only in NCD.
- If sold before maturity, then the capital gains tax is also added to the interest income, giving higher value of returns compared to fixed deposits.
- The debentures are transferable from one investor to another, with full ownership. Also there is no penalty for transferring these debentures.
Recommended Read :
- What is Fixed Deposit?
- Why Banks Take Fixed Deposit?
- Fixed Deposit Vs Mutual Fund
- Fixed Deposit Vs Recurring Deposit
- Bonds Vs Fixed Deposits
- Fixed Deposit Vs Non-Convertible Debenture
- Best Alternatives to Fixed Deposits
- How to Compare and Select Fixed Deposit Plan?
- How to Open Fixed Deposits for Nri?
- Fixed Deposit for Retired Citizens
- Callable vs Non Callable Fixed Deposits
- Loan Against Fixed Deposits
- How to get Loan Against Fixed Deposit?
- What is Tax Deducted At Source?
- How to Avoid Tds On Fixed Deposit?
- How to Save Tax On Fixed Deposit Interest?
- What is Tax Saving Fixed Deposit?
- Fixed Deposit and Income Tax Payment
- Main Disadvantages of a Fixed Deposits
- Premature Or Partial Withdrawal of Fixed Deposits
- What is Flexi Fixed Deposit?
- What is a Corporate Fixed Deposit?
- What is Term Deposit?
- Benefits of Online Application of Fixed Deposits
- Who Sets The Fixed Deposit Rate in India?
- Importance of Tenure in Fixed Deposit
- What is a Debenture?
- How to Invest in Debenture?
- What is NCD (Non Convertible Debenture)?
- Partially Convertible Debenture
- Difference - Convertible & Non Convertible Debenture
- Bond vs Debenture
I can see now why some people would choose the non convertible debentures over a fixed term deposit. I just want to know why money is so complex… sigh.
I always thought fixed term deposit, or even a rolling deposit would be the best investment to make. But sounds like there are fewer risks and higher interest here.
Reading all this information is really making my head explode! But now I feel like I have more control over my banking and investments.
If non convertible debenture have so many advantages over fixed depsits, why is it then FD’s are more popular than the latter? NCD’s are not subjected to tax deduction at source. Moreover they can be invested for a longer period as compared to FD’s. Risk return ratio is even higher for secured NCD’s,
This was quite an informative article. Non-convertible debentures have several advantages over fixed deposits but their only drawback is that they cannot be converted into shares which is a pity. And if NCD’s have so many advantages compared to fixed deposits , why are fixed deposits so popular? I completely agree with Vandana over this point and would like to see my question answered if possible . It will only help me in making the right financial decisions in the future.
It sounds a great idea how to invest some of your extra money. For someone who is nor interested in making decisions in the company and only wants to earn some additional money on the basis of a good investment non-convertible debentures sound just fine. Higher interests and secured investment make this financial instrument quite appealing. A nice article filled with interesting information.