NCDs Investment | How to Buy? | Risk Factors | NCD vs FD | Best NCDs

What are Non Convertible Debentures(NCDs) Meaning?


Whenever an organization wants to raise the amount from the citizen it issues a debt paper for a specified tenure where it pays a fixed interest on the investment.
This paper is called a debenture and there are two types.
Convertible Debentures can be converted into equity shares on maturity.
Non-Convertible Debentures meaning is, these cannot be converted into equity shares of the liable company.
Non-Convertible Debentures also called NCDs, are attractive investment choices for the higher rate of interest.
It is a fixed-income instrument like Bank FDs and can be traded on stock exchanges.
Let us take a look Non-Convertible Debentures meaning in terms of returns and risk.

Read How to Invest in Indian Bonds? What are Bonds? Types of Bonds?

Types of Non-Convertible Debentures


There are 2 types of NCDs-secured and unsecured.

Secured NCDsSecured Debentures are backed by the assets of the organization.
If an organization fails to pay the obligation, the investor can claim it via liquidation of these assets.
Secured NCDs offer lower interest rates compared with unsecured debentures.
Unsecured NCDsThe unsecured debentures are not secured by any charge on the assets of the organization and will be subordinate to the claims of all other creditors. Therefore, these come with a high rate of interest.
Non Convertible Debentures(NCDs) Meaning
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NCDs Investment 2023


Fixed-return investments would include short-term (National Savings Certificate or Bank FDs) or long-term investments (Public Provident Fund).
If you want to increase your allocation to this section, give the Secured Non-convertible Debenture (NCD) due consideration.

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Non-Convertible Debentures Features 


Let us check Non-Convertible Debenture’s meaning in terms of features.

Tax Implications On Maturity – Interest received is added to the total income and
taxed at the marginal rate of income tax depending on your tax slab.

Sold on the stock market before one year – You will have to pay short-term capital gains(STCG) at income-tax rates applicable to you.

Sold on the stock market before maturity but after one year – You will have to pay long-term capital gains tax(LTCG) on the effective return at applicable rates.

Credit Rating
If you want to buy NCDs, it is key to know the rating of the debenture before you purchase it.
Agencies such as CRISIL, CARE, and ICRA Ratings give ratings to the organization that raises funds via NCD.
A higher rating (AAA or AA-Stable) means the issuer can service its debt on time and carries a lower default risk.

Minimum tenure of 90 days to a maximum of 10 or more years.
Investors can opt for a short or long tenure NCD.

High-interest rates
The interest normally ranges from 8% to 12% depending on NSDs.
Interest payout is monthly, quarterly, half-yearly, annually, or cumulative.
If you looking for a regular income from Non-Convertible Debentures,
You can choose those that pay interest on a monthly/quarterly/annual basis.
If you just want to grow your wealth,
You can select for cumulative option, where the interest earned is reinvested and paid at maturity.

You can sell the NCDs on stock exchanges.
NCDs with AAA Stable rating is the most liquid and AA+ rating are expected to be relatively less liquid.
Therefore, liquidity depends on the rating.

Non Convertible Debentures Listed NSE- Recently

  • Muthoottu Mini Financiers Ltd.
  • Muthoot Finance Ltd
  • Kosamattam Finance Ltd.
  • Muthoot Fincorp Ltd.
  • Muthoottu Mini Financiers Ltd.
  • Muthoot Fincorp Ltd.
  • Muthoottu Mini Financiers Ltd.
  • KLM Axiva Finvest Ltd.
  • Kosamattam Finance Ltd.
  • Sakthi Finance Ltd.
  • Muthoot Vehicle Asset Finance Ltd.
  • JM Financial Products Ltd.
  • Muthoottu Mini Financiers Ltd.
  • Muthoot Fincorp Ltd.

Risk Factors


Let us check Non-Convertible Debenture’s meaning in terms of risk.

1. Select a company with an AA+ rating or above.
Credit rating calculates the company’s potential to raise cash
from its internal and external operations and its sustainability.
2. Unsecured NCDs are not secured
by the underlying assets of the organization can default
on principal and interest payments in case of losses.
Although, in the case of secured NCDs even
if the company makes losses,
its obligation toward investors is discharged by
liquidating its underlying assets.
3. The major risk in an NCD is that of default i.e. credit risk.
In the current market scenario,
with NBFCs going by a liquidity crisis and higher-rated papers
also defaulting.

NCDs Eligibility

  • Only Resident Indian individuals and HUF can invest in NCDs.
  • NRIs can also invest in NCDs provided the organization issuing NCDs allows them to invest in it.
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How to Buy NCDs?


Investors had the option between holding NCDs in physical form and Demat form.
Although, for the last few months, all the NCD issues are coming into mandatory Demat accounts only.
Therefore, there will not be any kind of physical certificate allotment of the NCDs.
This makes it compulsory for investors to have an active Demat account before applying for NCDs.
NCDs are debt instruments that can be purchased from your trading account from the secondary market similar to how you buy and sell shares.
Debentures are listed in the N series.
Let us take a look at both approaches for buying the NCD.

NCDs are initially issued by companies at different face values.
Then, these debentures are traded on the exchanges.
You, therefore, have two choices.

  1. New Issue Market (NIM) or Primary market
    A market where NCDs are issued for the first time.
    Anyone can purchase these debentures within a specified duration.
    During the public issue, you can invest by submitting a form.
  2. Download the Debentures form of the issuing organization’s website or BSE/NSE website.
  3. Print and fill it with the needed information.
  4. Attach KYC documents and a cheque for the application amount.
  5. Submit the form at Broker Centers/ Designated RTA Locations mentioned in the form.
  1. After Issue Market (AIM) or Secondary market
    A Market where NCDs are traded once issued.
    NCDs are publicly traded on the NSE (National Stock Exchange) of the BSE (Bombay Stock Exchange).
  2. Log on to your demat account.
  3. If you’re looking for any NCD, just type it in the search box and the list of all the searchable NCD will show up, then you can choose the NCD.
  4. Enter mandatory details like the number of lots and other required information.
  5. Click submit to complete your request.


  1. Rate of Interest
    As of now, while most banks are offering around 6% p.a. over 3 or 5 or 10 year periods.
    NCDs are offering up to 9-10% or even higher over the same tenure.
  2. Payout Frequency
    In a bank FD, one may select to opt for any frequency of interest payments like monthly, quarterly, half-yearly, annual or cumulative. Although, in NCDs, not all issues will carry such options.
  3. Taxation
    The interest earned from bank FD or NCD during the year is to be added to your total income.
    Therefore, it is entirely taxable as per your income tax slab.
  4. Tax Benefits
    Tax-saving 5-year bank FDs come with tax benefits u/s 80C of the Income Tax Act 1961, there is no such benefit on NCDs.
  5. Tenure
    Bank FDs are available from 7 days to 10 years.
    Most NCD offer tenures ranging from 365 days to 10 years, with longer tenure NCDs offering higher returns.
  6. Liquidity
    Bank FDs are more liquid as one may withdraw the amount before maturity by paying a penalty.
    However, Tax-saving 5-year bank FDs can not withdraw before maturity.
    On the other hand, NCDs mature as per their original tenure.
    Although, one can sell them in the secondary market before maturity.
  7. Safety
    NCDs are higher risk in nature when compared to bank FDs,
    since NCDs run the risk of the issuer defaulting on repayments.

Best NCDs in India 2023

Secondary Market NCDsCredit rating
State Bank of IndiaAAA Stable
National Highways Authority of IndiaAAA
L&T Infrastructure Finance Company LtdAA+
Indian Railway Finance Corporation LtdAAA
Source – hdfcsec

Frequently Asked Questions

  • Will TDS be deducted from NCDs?
    Interest received from NCDs is not subject to TDS under section 193 of the Income Tax Act.
  • Are these NCDs tax-free?
    No, The interest received in NCDs is not tax free.
  • Can I apply in joint names?
    Yes. However, the maximum limit is three applicants.
  • How will I get interested in the due date?
    Interest shall be credited to the respective Bank account via ECS on the due date for interest payment.
  • Can I get the loan on NCDs?
    No, You cannot avail of any type of loan.
  • How to Buy NCDs without Demat account?
    it is dependent on the issuer. Normally all issues have both options (Online/offline).
  • Can NRIs invest in NCDs?
  • Is PAN compulsory while investing in NCD?

Source – NSE, BSE and Moneycontrol

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