What are NCDs

Whenever a company wants to raise money from the public it issues a debt paper for a specified tenure where it pays a fixed interest on the investment. This paper is known as a debenture. Some of the debentures are termed as convertible debentures since they can be converted into equity share on maturity. A Non - Convertible debenture or NCD do not have the option of conversion into shares and on maturity the principal amount along with accumulated interest is paid to the holder of the instrument.

There are two types of NCDs-secured and unsecured. A secured NCD is backed by the assets of the company and if it fails to pay the obligation, the investor holding the debenture can claim it through liquidation of these assets. Contrary to this there is no backing in unsecured NCDs if company defaults.

BENEFITS
1. NCDs yield better returns: NCDs offer advanced returns when compared with other investment options.NCDs are fairly attractive due to high returns and low risk. A high income investor can get better returns after tax.  Nevertheless, this interest rate and rate of return may vary according to market conditions and companies may lower rates according to the prevailing situation.

2. NCDs are not subjected to TDS:  in case of an NCD, as per section 193 of the Income Tax Act, no such taxes on interest earned are applicable when securities are issued by a company in a dematerialized (Demat) form and listed on a stock exchange.  However, taxes are applicable to NCDs if they are in physical form. Also, a Non Resident Indian (NRI) who invests in NCDs is subject to TDS according to section 195 of the IT act.

3.NCDs can be easily liquidated: In case of NCDs you have an option to either sell on the National Stock Exchange. They have better liquidity due to their NSE listing.