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Non-Convertible Debentures (NCD)

Non-Convertible Debentures (NCDs) are a crucial component of the corporate bond market, serving as a popular debt instrument for both issuers and investors. An NCD is essentially a formal acknowledgement of debt issued by a company to the public, promising fixed interest payments for a specified tenure and return of the principal upon maturity.

Unlike convertible debentures, NCDs cannot be converted into equity shares of the issuing company. This feature ensures predictable, stable returns, making them attractive to risk-averse investors seeking higher yields than traditional fixed deposits.

Understanding the Role and Types of NCDs

NCDs allow corporations to raise long-term capital directly from the public. They are classified based on the security offered:

NCD TypeSecurity / CollateralRisk Profile
Secured NCDsBacked by specific corporate assets, which can be sold to repay investors in case of default.Lower risk, preferred by conservative investors.
Unsecured NCDsNot backed by specific assets. Repayment depends solely on the issuer's financial capacity.Higher risk, usually offers higher interest rates.

Key Advantages for Investors

NCDs are attractive investment options, especially when issued by financially strong companies like Dhanam. They offer several unique benefits:

  • >Predictable Returns: Investors receive a fixed rate of interest for the entire tenure, providing stable cash flow.
  • >Higher Liquidity: NCDs are typically listed on stock exchanges (BSE/NSE), allowing investors to sell them before maturity if cash is needed.
  • >Credit Rating Assurance: All publicly issued NCDs must be rated by credit rating agencies like CRISIL or CARE, helping investors assess the default risk.
  • >Flexible Payouts: Investors can choose between cumulative (interest paid at maturity) or non-cumulative (interest paid periodically—monthly, annualy, etc.) options.

Investment Process: How to Apply for Dhanam NCDs

Investing in NCDs typically occurs during a Public Issue period. You must have a Demat and Trading account to apply.

  • >Check Issue Details: Review the NCD's credit rating, tenure, interest rate, and security structure (Secured/Unsecured).
  • >Apply via ASBA: Use the ASBA (Application Supported by Blocked Amount) facility through your bank's net banking portal or through a broker to submit the application.
  • >Allotment and Listing: Once allotted, the NCDs are credited to your Demat account. They are then listed on the exchange for secondary market trading.

Consult with a financial advisor to understand how NCDs fit into your overall portfolio and risk tolerance.

Frequently Asked Questions about NCDs
An NCD is a fixed-income instrument issued by corporations to raise capital. It cannot be converted into equity shares, ensuring the investor receives fixed interest payments and the principal amount upon maturity.
NCDs are generally considered safer than stocks because they are debt instruments, but the safety level depends on the issuer's credit rating. Higher-rated (AAA, AA) NCDs carry lower risk of default. Dhanam NCDs are typically secured by the company's assets.
The minimum investment is determined by the face value of the NCD and the minimum lot size specified by the issuer during the public issue. This usually ranges from ₹10,000 to ₹50,000.
NCDs offer various interest payment options: Monthly, Quarterly, Half-yearly, Annually, or Cumulative (where interest is paid along with the principal upon maturity).
Interest earned from NCDs is treated as 'Income from Other Sources' and is taxable at the investor's slab rate. However, if NCDs are held in dematerialized form and sold on the stock exchange before maturity, long-term capital gains tax (after one year) may apply.
Yes, NCDs issued in demat form and listed on a stock exchange can be traded and sold on the secondary market before their maturity date, providing liquidity to the investor.
Secured NCDs are backed by the issuer's specific assets, providing a safety cushion to the investor in case of default. Unsecured NCDs are not backed by any specific collateral, relying solely on the issuer's creditworthiness.