NCD

Full form: Non-Convertible Debenture

Investments

NCDs are fixed-income bonds issued by companies (not government), offering higher yields than FDs or G-Secs, with higher credit risk. They cannot be converted to equity. Listed on BSE/NSE -- can be bought at issuance (primary) or on exchange (secondary). Minimum Rs 1,000 face value.

In detail

NCD features:nAAA-rated NCDs: 7.5-8.5% yield (slightly above comparable G-Secs)nAA-rated NCDs: 8.5-10.5% yieldnA or below: 11%+ but high risknnTypes: Secured NCDs (backed by company assets -- safer) vs Unsecured NCDs (no collateral -- higher risk).nnTaxation: interest income taxable at slab rate. Listed NCDs held 12+ months: LTCG 12.5% on gains.nnNCD issuers in India: Shriram Finance, Muthoot Finance, Tata Capital, HDFC Ltd (before bank merger), IIFL Finance.

Formula

NCD yield to maturity (YTM) = [Annual coupon + (Face value - Price)/Years] / [(Face value + Price)/2]

Real-life example

🇮🇳 India example

Priya buys Shriram Finance NCD: Rs 1,000 face value, 9.2% coupon, 3-year maturity. Annual interest: Rs 92/NCD. Taxable at slab (30% bracket): Rs 64.4 net. Effective yield after tax: 6.44%. FD at same 3 years: 7.5%. After 30% tax: 5.25%. Shriram NCD wins by 1.19% for same risk profile.

Frequently asked questions

Are NCDs safer than FDs? ▼

AAA-rated NCDs from large companies are comparable in credit risk to FDs from small private banks. But NCDs do not have DICGC insurance (FDs covered up to Rs 5L). If the company fails, NCD recovery depends on secured asset quality. For secured NCDS: higher recovery vs unsecured.