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A Little Known Investing Gem That Earns More Than A Fixed Deposit

Hope my Gruhinis are getting wiser with their spending and savings! Let’s get wiser with investing too! Your Great Gruhini helped you become friends with Funds and Sensex, let us know more about a popular investment option these days. It’s a “Non Convertible Debentures (NCD)”. Companies issue NCDs that pay interest which is more than a bank fixed deposit. Now if you tell this to your spouse or your dad, it’s definitely going to earn you some brownie points! This is all you should know about this investing gem.

”Non Convertible Debentures….sounds Greek to me” 

NCD is an investment instrument through which companies in need of money, borrow it from people like us who are good at saving! As we invest in it, the company pays us a fixed rate of interest for a fixed period of time. In its financial records, such borrowing is termed as “bonds or debentures” When the tenure ends you get back the amount invested along with the interest.

Companies need money to enter into new businesses, expand, takeover businesses or to payback their loans. They do so by floating new shares (which we buy), by taking bank loan, or by floating instruments like bonds or debentures.

 ”What should I look out for before investing in one?”

NCDs can vary in terms of interest rate, the time period, its credit rating, the rights it offers, or if its secured by company’s assets or its un-secured. A secured debenture is like an additional guarantee. Come what may happen to company, you will get your money back along with interest. The Shriram Transport Finance, a finance company’s NCD which is open for subscription and offers 11.50% return annually is a secured issue.

Debentures can be convertible and non convertible too. A non convertible debenture as name suggests, doesn’t give you the right to convert debenture in to shares.

 ”Any Company’s NCD will be good, is it?”

Like the grades your kids get in their report cards, a company’s bonds (or debentures) also get rated for their financial soundness. These ratings (AAA, +AA, AA etc) are given by independent professional rating companies like Crisil, ICRA and Care. For instance Edelweiss Finance Company NCD which closed last week had AA rating and Shriram Transport Finance’s NCD has +AA rating. More A’s and pluses indicate a superior rating.

A good rating mind you isn’t a guarantee but just gives you comfort that the company will be in a position to repay the money at the end of the tenure.

Few weeks later if I need cash urgently, can I en-cash my NCD?”

Yes. Companies do list their NCDs on two major stock exchanges, Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). If lot of people want to buy these NCDs, you can be lucky to sell them through the exchange. So if an NCD is traded actively, you can sell it at a market price which could be lower or higher than the price you paid for it.

”Is that all I need to know about NCD?”

The interest you earn from NCD is taxed just like your other income. And if you want to sell it before the tenure ends, be ready to pay a short-term or long term capital gains tax depending on the period you held it.

Your tax planner or financial adviser can help you chose the available NCDs, keeping in mind your tax bracket. You can invest online if your broker provides an online facility.

”It all sounds so complex. I am still little scared of trusting a company instead of my bank”

Indeed, bank fixed deposit is the easiest and safest bet if you are fine with earning 8-9% return.

If you would like to earn higher returns (as high as 11.50% given by NCDs), you got to be ready to take the risk too. Debentures are more risky than fixed deposits as you take a risk of giving your money to a company. The company will be under an obligation to honor its commitment of returning your original investment along with interest.


About Rachna Monga Koppikar

Rachna aka your Great Gruhini is a finance writer with over a decade's experience in writing about personal finance matters with leading financial publications of India. As she studies to be a certified financial planner, she is also on a mission to make every woman a money savvy individual. So shed your inhibitions. Get over your money worries with The Great Gruhini. Write to her at

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  1. This was indeed an eye opener… How do I buy NCDs?

    • thanks aparna for stopping by. Please check with your bank as some of them (private sector ones) sell these NCDs. If your bank isn’t selling these then you may have to approach stock brokers. If you or anyone in your family has an online broking account, it would be easiest way to invest in NCDs

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