Non-convertible bonds (NCD) have become a popular alternative for fixed-income investment in India, especially for investors looking for more returns than traditional fixed deposits. But before you invest, it is necessary to understand the difference between secure and unsafe NCDs, as it directly affects your investment risk and security.

What Are NCDs?

NCDs are debt companies that have been issued to raise money from the public. These are "non-converting", which means they cannot be converted to shares in the release company. Investors earn interest on them for a certain period, and the principal is paid at maturity.

Now let’s dive into the key differences between secured and unsecured NCDs.

Secured NCDs

The company's assets back Secured NCDs. If the company fails to repay the principal or interest, investors have the legal right to claim assets specified to recover their money. These assets may include other assets promised as land, buildings, a receipt, or security.

Key Features of Secured NCDs:

• Supported by tangible property or security

• Lower default risk compared to unsecured NCDs

• Usually, a slightly lower interest rate than unsafe NCD 

• Secure option for conservative investors

Unsecured NCDs

Any collateral does not back unsecured NCDs. They are issued purely based on the issuer's credibility and creditworthiness. are issued purely on the basis of the issuer's reliability and credit. If the company misses, investors have no requirement for specific assets and should wait for other unsafe creditors.

Key Features of Unsecured NCDs:

• No asset bank or security

• High risk of standard

• Give high interest rates to attract investors

• Suitable for high-risk tolerance Investors

Which One Should You Choose?

The choice between safe and unsafe NCDs depends on your risk appetite and investment goals. If capital security is your priority, SAFE NCD is a better alternative. However, if you are ready to take a high-return risk, unsafe NCDs can fit your strategy - the issuers have a strong credit rating.

Conclusion

Understanding the difference between secured debt vs. unsecured bonds, NCDs is crucial before investing. While secured NCDs offer safety through asset backing, unsecured NCDs carry higher risk but potentially higher returns. Always check the credit rating, issuer's background, and terms before investing in any NCD.

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