Bonds/ NCD’s are the products offered by various private and public sector corporates through public issues or on private placement basis. Bonds issued under specified categories will also offer Tax free returns as well as Tax exemption to the investors. The coupon rate offered varies based on the rating of the corporate raising the debentures. Being long term, these bonds are listed on exchange and can be traded on the exchange on listing if invested in Demat mode.
What are the types of Debentures?
Convertible debentures are unsecured bonds that can be converted to company equity or stock.
Non-convertible Debentures (NCD)
Nonconvertible debentures are unsecured bonds that cannot be converted to company equity or stock.
How is NCD different from Bonds?
1. NCDs are traded on Stock Exchanges
2. Issuance and Trading will be in Demat form only.
3. Interest will be paid through Direct Credit / ECS / RTGS / NEFT mode
4. A good credit rating is required for the company to issue a NCD.
Who Should Invest In NCD’s?
- Investors who expects a stable consistent return with least risk.
- Investors who want to have consistent monthly returns.
- Fixed Deposit Investors can look at NCD’s to improvise their returns.
- Investors looking at portfolio diversification with the Fixed Income security
What are the benefits of investing in NCD’s?
Better Returns - NCD’sprovide a higher rate of interest for their investors.
Liquidity - To sell NCDs, investor has two options, 1.) Sell on the Stock Exchanges. 2.) Exercise the Put /Call option
What is the Tax Implications if one Invest in NCDs?
- No Income Tax is deductible at source as per the provisions of Sec 193 of the IT Act.
- The interest will be taxable in the usual course as per the income tax slab of the investor.
- If investor sells the NCD at the stock exchange, it will be treated as a long term capital asset.
What should investor know about NCD’s?
Key Parameters of NCD’s
- Coupon Rate: The interest rate payable to the investor.
- Face Value: The nominal value of a NCD stated by the issuer.
- Redemption: The return of an investor’s principal.
- Market Value: The last reported sale price.
- Yield: The annual returns on an investment expressed as a percentage.