Non-convertible debentures (NCDs) are debt instruments that are issued by companies to raise capital. They are similar to bonds, but they cannot be converted into equity shares of the company. NCDs are typically issued for a fixed term, and they pay a fixed rate of interest.
NCDs mature in India on a specific date, which is known as the maturity date. On the maturity date, the company that issued the NCDs must repay the principal amount of the NCDs to the investors. In addition, the company must pay the accrued interest to the investors.
There are two ways for NCDs to mature in India:
Bullet payment: The company repays the principal amount of the NCDs and the accrued interest on the maturity date.
Serial payment: The company repays the principal amount of the NCDs in instalments, and the accrued interest is paid on each instalment date.
How to redeem NCDs in India
Investors can redeem NCDs in India by approaching the issuer of the NCDs or through a stockbroker. The issuer or the stockbroker will then process the redemption request and pay the investor the maturity amount.
Tax implications of NCDs in India
The interest earned on NCDs is taxable in India. The tax rate applicable to interest on NCDs is the same as the tax rate applicable to interest on income from fixed deposits.
Advantages of investing in NCDs in India
There are several advantages to investing in NCDs in India. These advantages include:
Regular income: NCDs provide investors with a regular stream of income in the form of interest payments.
Fixed return: NCDs offer investors a fixed rate of return, which is not affected by market fluctuations.
Capital appreciation: NCDs can also appreciate in capital value if the creditworthiness of the issuer improves.
Tax benefits: The interest earned on NCDs is taxable in India, but it is eligible for certain tax deductions.
Disadvantages of investing in NCDs in India
There are also some disadvantages to investing in NCDs in India. These disadvantages include:
Credit risk: NCDs are subject to credit risk, which is the risk that the issuer of the NCDs may default on its payment obligations.
Interest rate risk: The value of NCDs can decline if interest rates rise.
Liquidity risk: NCDs may be less liquid than other investments, such as shares or bonds.
NCDs can be a good investment option for investors who are looking for a regular stream of income and a fixed rate of return. However, investors should carefully consider the credit risk, interest rate risk, and liquidity risk associated with NCDs before investing.
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