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Non Convertible Debentures (NCDs)
Non-Convertible Debentures (NCDs) in India are debt instruments issued by companies to raise funds from investors. Here are some key points about NCDs in India:
Debt Instrument
NCDs are fixed-income securities that offer a fixed rate of interest (coupon rate) over a specified period. Unlike convertible debentures, NCDs cannot be converted into equity shares of the issuing company.
Issuer
NCDs are typically issued by corporate entities, including public and private companies, financial institutions, and non-banking financial companies (NBFCs). These companies use NCDs as a means of borrowing money from investors to finance their business operations, expansion plans, or debt refinancing.
Credit Rating
NCDs are assigned credit ratings by credit rating agencies such as CRISIL, CARE, and ICRA, based on the issuer's creditworthiness and financial strength. Higher-rated NCDs are considered less risky and typically offer lower interest rates compared to lower-rated NCDs.
Interest Payments
NCDs pay periodic interest payments (coupon payments) to investors at fixed intervals, such as annually, semi-annually, or quarterly, depending on the terms of the NCD issue. The interest payments are typically taxable as per the investor's income tax slab.
Maturity Period
NCDs have a specified maturity period, ranging from a few months to several years. At the end of the maturity period, the issuer repays the principal amount (face value) to the investors. NCDs may have both secured and unsecured options, with secured NCDs backed by specific assets of the issuer.
Listing and Liquidity
NCDs issued by publicly-listed companies are listed on stock exchanges such as the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE), providing liquidity to investors who wish to buy or sell NCDs before maturity. However, liquidity in the secondary market may be limited, and investors may face challenges in finding buyers or sellers for NCDs.