NCDs are issued by companies to raise money from the market. When a company raises money through NCDs, it is taken as a loan. Therefore, interest is also paid by the company.
Non-Convertible Debentures are an option for investors who want to earn more interest than traditional fixed income options like Fixed Deposits and National Savings Certificate.
NCDs have fixed maturity dates and investors get returns with a fixed interest rate.
Secured NCDs are those in which is raised by a company against security. That means, if the company is not able to pay money to the investors, then the investors can recover their money by selling the assets of the company.
In unsecured NCDs, there is no company security. This means that if the company is not able to return its money its investors, then it may be difficult for the investors to get their money back.
Corporate companies issue NCDs to raise debt which cannot be converted into equity and most NCDs are issued in multiples of Rs 1000.
Before investing in the NCDs of any company, it is important to understand the business model and the strengths of that company.
Compiled by Syed Muskan