Is it safe to invest in NCD
Investment in Non-Convertible Debentures (NCDs) carries some degree of risk, as it is a debt instrument, which means the investors are lending money to the issuer. The safety of the investment depends on several factors such as the creditworthiness of the issuer, the type of NCD, and the prevailing market conditions.
However, compared to other fixed-income investments, NCDs generally offer higher returns and are considered relatively safe investments. It is recommended to thoroughly research the issuer, and the terms of the NCD, and to seek the advice of a financial advisor before making any investment decisions.
Features of NCD
Non-Convertible Debentures (NCDs) are fixed-income securities issued by companies to raise long-term debt capital. Some of the key features of NCDs are:
1. Fixed Interest: NCDs offer a fixed rate of interest, which is usually higher than savings accounts or fixed deposits, but lower than equity investments.
2. Tenure: NCDs have a fixed tenure, usually ranging from 1 to 10 years.
3. Credit Ratings: NCDs are rated by credit rating agencies to assess their creditworthiness. A higher credit rating implies a lower risk for the investor.
4. Secondary Market: NCDs can be bought and sold in the secondary market, allowing for liquidity.
5. Secured or Unsecured: NCDs can be either secured or unsecured, depending on the issuer's ability to back the debenture with collateral.
6. Interest Payment: Interest on NCDs is paid periodically, such as annually, semi-annually, or quarterly.
7. Tax Benefits: Investment in NCDs is eligible for tax benefits under the Indian Income Tax Act, 1961.
Is NCD Tax Free?
NCDs are not tax-free, but they are eligible for tax benefits under the Indian Income Tax Act, 1961. The interest earned on NCDs is taxable as income under the head "income from other sources". The tax rate is applicable based on the individual's tax slab.
However, the interest income from NCDs is eligible for a deduction under Section 80C of the Income Tax Act, up to a maximum limit of INR 1.5 lakhs. This means that the interest income from NCDs can be reduced from the taxable income, reducing the overall tax liability.
It's important to note that tax laws are subject to change and it's always advisable to consult a financial advisor or a tax professional for the most up-to-date information.
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