What are NCD bonds?

NCD (Non-Convertible Debenture) and Bonds are two popular investment instruments available to investors looking for a fixed-income investment option. Both NCDs and bonds provide fixed returns to investors at regular intervals, and their principal amount is guaranteed at maturity. In this response, we will define NCD and Bonds, and outline the advantages of investing in these instruments.

What is an NCD?

A Non-Convertible Debenture (NCD) is a debt instrument used by companies to raise capital from the public. NCDs are similar to bonds but cannot be converted into equity shares of the issuing company. NCDs typically have a fixed maturity period, and interest is paid regularly, annually, semi-annually, or quarterly. NCDs can be listed or unlisted and may be secured or unsecured. NCDs are typically rated by credit rating agencies such as CRISIL, CARE, or ICRA.

What is a Bond?

A bond is a fixed-income security that is issued by governments, corporations or other entities to raise capital. Bonds typically have a fixed maturity period, and interest is paid regularly, annually, semi-annually, or quarterly. Bonds can be listed or unlisted and may be secured or unsecured. Bonds are typically rated by credit rating agencies such as Moody's, Standard & Poor's, or Fitch.

Advantages of Investing in NCDs and Bonds

An investor can get many advantages to invest in NCD and bonds. These advantages are as follows:

Fixed Income: NCDs and bonds provide fixed income to investors at regular intervals. This is an advantage for investors who are looking for a stable and predictable income stream.

Guaranteed Principal: Both NCDs and bonds provide a guarantee of the principal amount at maturity. This means that investors will receive the original amount invested at the end of the maturity period.

Diversification: Investing in NCDs and bonds can help investors diversify their investment portfolios. This is because NCDs and bonds are typically issued by different companies or entities, reducing the concentration risk.

Higher Returns: NCDs and bonds typically offer higher returns than traditional fixed deposits or savings accounts. This is because they carry a higher risk than these instruments.

Liquidity: NCDs and bonds are liquid instruments, which means that investors can sell them before maturity if they need funds. This makes them more flexible than other fixed-income investments.

Tax Benefits: Some NCDs and bonds offer tax benefits to investors. For example, the interest earned on certain bonds is exempt from income tax, up to a certain limit.

Rating Information: NCDs and bonds are typically rated by credit rating agencies, which provide investors with an indication of the creditworthiness of the issuer. This assists investors in making sound investment decisions.

Conclusion

NCDs and bonds are fixed-income investment options that provide stable and predictable income to investors. They offer several advantages such as guaranteed principal, diversification, higher returns, liquidity, tax benefits, and rating information. However, investors should also consider the risks associated with these instruments before investing, such as interest rate risk, credit risk, and liquidity risk. It is advisable to consult a financial advisor before investing in NCDs and bonds.