Non-convertible debentures (NCD) are fixed-income instruments, usually issued by high-rated companies in the form of a public issue to accumulate long-term capital appreciation. They offer relatively higher interest rates when compared to convertible debentures. Big companies issue them to raise funds without giving any option of conversion to equity.
Non-convertible debentures fall under the debt category. They cannot be converted into equity or stocks. NCDs have a fixed maturity date and the interest can be paid along with the principal amount either monthly, quarterly, or annually depending on the fixed tenure specified. They benefit investors with their supreme returns, liquidity, low risk and tax benefits when compared to that of convertible debentures.
Example of NCDs: You can invest when the company announces NCDs or purchase after it trades on the secondary market. You must check the company’s credit rating, issuer credibility and the coupon rate of the NCD.
Non-convertible debentures are mostly backed by the creditworthiness and debt servicing capability of a company. Hence it can be said that they are highly affected by the nature of business and its money management capability. These instruments are vulnerable to business risks and threats. This is because if the company borrows more than it can pay back, its credit rating will go down.
Here is a brief summary of some factors you should consider when buying NCDs
1. Credit Rating Of The IssuerCredit rating tells about the ability to raise funds from internal or external sources and its sustainability.
As non-convertible debentures do not give any option, it highly depends on the repayment capability of the issuer. Thus, it’s recommended to choose those companies with an AA credit rating or more.
2. Debt LevelSome scrutiny of financial statements of the issuer is also required before investing in any non-convertible debentures. The assets quality of the company, debt-equity ratio, etc should be considered.
3. Capital Adequacy RatioCapital Adequacy Ratio (CAR) gauges the company capital and sees whether the company has sufficient funds to survive potential losses.
4. Provisions For Non-Performing AssetsKeep a track if the company is regularly being able to apportion provisions for its non-performing assets. This will also depend upon if the company is able to churn enough profits.
5. Interest Coverage RatioThis ratio shows the number of times the interest is covered by the earnings of the company. It determines how comfortably a company can settle its interest obligations. Thus, a higher interest coverage ratio may act as a plus point.
Organizations tend to raise funds through non-convertible debentures mostly to fulfil a specific business purpose. So, consider knowing more about the purpose of raising funds, where and how these funds will be used.
Just the interest rates alone does not decide the actual return an investor may get from the investment into non-convertible debentures. Running a check on the company’s health is also important; to check if the company will be able to honour the NCD payments to investors on maturity.
Also called Company Fixed Deposit (corporate FD) is a term deposit which is held over fixed period at fixed rates of interest. Company Fixed Deposits are offered by Financial and Non-Banking financial companies (NBFCs). The maturities of various company fixed deposits can range from a few months to a few years.
Corporate FD’s offer marginally more interest rate as prevailing. The returns on corporate FDs, at your current tax slab rate is subject to taxation. From FY 2020-21, if the interest crosses Rs 5,000 for Indian residents, a company will also subtract TDS on the interest.
We offer FD’’s of Top Corporate houses like Bajaj Finance Ltd.,HDFC Ltd, Mahindra and Mahindra Finance Services Ltd, LIC Housing Finance Ltd., PNB Housing Finance and most of Big Corporate House. Contact 9906339912