NCDs, Bonds, Corporate FDs

If you are constantly looking for the right investment opportunities with low risk and stable returns for your portfolio, Non-Convertible Debentures (NCDs) are one of the best investments. NCDs provide the avenue of not putting your money in volatile pool of equity markets and simultaneously provides you with liquidity to meet emergency expenses with a decent return.

Like other fixed income debt instruments, NCDs are issued by a company that agrees to pay a fixed rate of interest on your investment for a specified period, in order to raise capital from market for business purposes. Interest earned on NCDs is paid at different time period like quarterly, semi-annually or annually. They also have an option of cumulative interest in which case interest is cumulated & paid on maturity.

They cannot be transferred or converted to equity, unlike convertible debentures that can be converted by issue of company shares. NCD issues are rated by credit rating agencies like CRISIL, ICRA, FITCH, and CARE to ensure the company's ability to service the debt on time & lower default risk. NCDs can either be secured or unsecured. NCDs secured by the issuer company's assets to fulfill the debt obligation are considered secured NCDs.

If the NCD is held till maturity, the interest earned is added to the total income & taxed at marginal rate of income tax as per the appropriate tax-slab. If the NCD is sold before maturity, Short Term or Long Term Capital Gains Tax are applicable. No tax Deducted at Source (TDS) on listed debentures, makes them an even more attractive proposition. You can hold them in demat form to manage them easily.