Non-convertible debentures (NCDs) are a type of debt instrument issued by NBFC’s, corporations, governments, or other entities to raise funds. They are called "non-convertible" because unlike convertible debentures, they cannot be converted into equity shares of the issuing company. Instead, NCDs are purely debt securities that offer fixed interest rates and maturity dates. Here's a breakdown of their benefits for investors and their advantages:
NCDs provide investors with a regular fixed interest income, typically paid monthly & annually. This can be attractive for those seeking a steady source of income.
Investing in NCDs allows investors to diversify their portfolio beyond traditional equity investments, adding a fixed-income component that can help balance risk.
NCDs are considered relatively less risky compared to equities, as they offer predictable interest payments and return of principal at maturity. This can be particularly appealing to conservative investors.
Depending on the terms of the NCDs, some may have provisions for secondary market trading, providing investors with the option to sell their holdings before maturity.
NCDs are often assigned credit ratings by rating agencies, reflecting the issuer's creditworthiness. Higher-rated NCDs are generally considered safer investments.
NCDs offer a predetermined fixed interest rate, which provides investors with a clear understanding of the income they will receive over the investment period.
Capital Preservation Since NCDs repay the principal amount at maturity, investors can expect to receive their initial investment back, assuming the issuer does not default.
Issuing NCDs allows entities to tap into the capital markets, even if they might not have the credit rating necessary for traditional bank loans.
NCDs can attract investors who are looking for regular income without exposure to the volatility of the stock market.