Non-Convertible Debentures
Meaning, Interest, Procedure and Latest Updates
Non-Convertible Debentures (NCDs) are fixed-income instruments issued by companies to raise capital without offering equity. They provide regular, fixed interest (typically 7%–11%) and repay the principal at maturity. NCDs are non-convertible into shares, making them ideal for conservative investors seeking predictable returns. They come in secured (safer) and unsecured (riskier) types, are mostly listed on NSE/BSE, and are regulated by SEBI and the Companies Act, 2013. Interest earned is taxed as per income slab, and TDS applies above ₹5,000. They’re best suited for HNIs, retirees, and fixed-income seekers, especially when FD rates are low, and market volatility is high.
What Is the Meaning of NCD in Finance?
NCD stands for Non-Convertible Debenture. In simple terms:
- A debenture is like a loan you give to a company.
- In return, they pay you interest regularly and return the principal after a fixed term.
- Since it is non-convertible, it means you won’t get shares or equity later.
- You get fixed returns, not market-linked or ownership benefits.
So, NCDs are a safe and predictable debt investment.
Types of Non-Convertible Debentures (You Must Know)
NCDs are mainly of two types:
| Type | Meaning |
|---|---|
| Secured | Backed by company assets. If company defaults, assets can be sold to repay you. |
| Unsecured | No asset backing. Slightly riskier but may offer higher interest. |
Which one is better?
Secured NCDs are safer and more popular among conservative investors.
How Do Non-Convertible Debentures Work?
Let’s say a company issues an NCD with:
- ₹1,000 face value
- 10% interest rate (called coupon rate)
- 3-year tenure
If you invest in 10 NCDs (₹10,000), you will get:
- ₹1,000 every year as interest
- ₹10,000 principal at the end of 3 years
Some NCDs offer monthly, quarterly, or annual payouts, while others are cumulative (you get interest + principal at maturity).
NCDs vs Bonds – What’s the Difference?
| Feature | NCDs | Bonds |
|---|---|---|
| Convertibility | Non-convertible into shares | Can be convertible or non-convertible |
| Return Type | Fixed interest | Fixed or variable |
| Listing | Mostly listed on BSE/NSE | Can be listed or unlisted |
| Popular in India | Among retail and HNI investors | More popular with institutions |
Why prefer NCDs?
They offer higher interest than FDs, and being listed makes them easier to sell if you need money early.
What Is the Interest Rate on Non-Convertible Debentures?
NCD interest rates in India usually range from 7% to 11% depending on:
- The issuing company’s credit rating
- Market conditions
- Tenure of the NCD
| Issuer | Approx. Interest Rate (As of 2024–25) |
|---|---|
| Muthoot Finance | 8.50% – 9.50% |
| Tata Capital | 7.75% – 8.75% |
| Indiabulls | 9.00% – 10.00% |
| Shriram Finance | 9.25% – 10.50% |
Must try for:
Those who want fixed income with higher returns than bank FDs and are okay with moderate credit risk.
Who Can Issue NCDs in India?
As per the Companies Act, 2013 and SEBI regulations, NCDs can be issued by:
- Public or private companies
- Non-Banking Financial Companies (NBFCs)
- Corporates looking to raise funds without diluting equity
Companies must have a valid credit rating and get listed on stock exchanges if NCDs are issued to the public.
Where to Buy Non-Convertible Debentures in India?
You can buy NCDs:
- Through public issues (announced by companies like IPOs)
- From the secondary market via your Demat account
- Through brokers and wealth advisors
Most NCDs are listed on BSE or NSE, making them easily tradable.
If you’re new to investing, this is a must-know instrument for building a diversified fixed-income portfolio.
Latest Update on Non-Convertible Debentures
As per SEBI guidelines (2023–24):
- All public NCD issues must be credit-rated
- Minimum tenure for secured NCDs is 1 year
- Companies must maintain Debenture Redemption Reserve for investor protection
- Interest income is taxed as per income slab, and TDS may be applicable above certain thresholds
Why this matters?
Because taxation and credit risk can directly impact your returns.
When Should You Invest in NCDs?
Invest in NCDs when:
- Bank FD rates are low
- You want predictable income
- You want to avoid market volatility
- You are comfortable holding till maturity or trading in the secondary market
They are especially useful for retired individuals, HNIs, and risk-averse investors.
Taxation on NCDs in India – Must Know Rules
| Income Type | Tax Treatment |
|---|---|
| Interest Earned | Taxed as per your income tax slab |
| Capital Gains (sale before maturity) | STCG or LTCG depending on holding period |
| TDS | Applicable if interest exceeds ₹5,000 (for listed NCDs) |
Whether you invest through demat or physical form, all interest received is considered “Income from Other Sources.”
Final Words – Are Non-Convertible Debentures a Good Investment?
Yes, if you want:
- Fixed and predictable returns
- Safer alternative to stocks
- Higher returns than FDs
But avoid if:
- You want liquidity without price risk
- You are in a high tax bracket and prefer tax-free bonds
- You cannot assess credit ratings properly
Quick Snapshot – Non-Convertible Debentures in India
| Parameter | Details |
|---|---|
| Return Type | Fixed interest (7%–11%) |
| Convertibility | Non-convertible into equity |
| Types | Secured and Unsecured |
| Minimum Investment | Usually ₹10,000 |
| Issuers | NBFCs, Corporates, Financial Institutions |
| Taxation | As per slab (interest taxable) |
| Regulation | SEBI + Companies Act, 2013 |
| Listing | Mostly listed on NSE/BSE |
| Liquidity | Tradable but market-dependent |
| Suitable For | HNIs, retirees, fixed income seekers |
