NCDs & ITS BENEFITS

October 27 2016

Whenever the company wants to raise money from the public it issues a debt paper for a specified tenure where it pays a fixed interest rate on the investment. This paper is known as a debenture . Well, some of the debentures are convertible and some are non-convertible. It’s very easy to understand the meaning of this i.e. it basically means convertible debentures can be easily converted into shares after the maturity date has arrived. Whereas non-convertible debentures or NCD are not convertible even after maturity. NCDS are also further categorized into two parts. Namely the secured ones and unsecured.

Non Convertible Debentures

HOW TO BUY NCD’S

You need to have a usual trading and a Demat account to buy a nonconvertible debenture.

You log on to your trading account and or ask your broker to buy you an NCD on your behalf.
The manner in which you buy the NCDS is the same as shares .
The NCDS that you buy are held in your Demat account.
The interest on NCDs is determined at the fixed coupon rate which means you get your interest on the date fixed by a company.

Buying NCDs has simply however been broadly classified into two parts

Public Issue- During the public issue of bonds you can invest in them by submitting a physical form furnishing the details as requested. Also, you could opt for opening and trading through your Demat account as mentioned above.

Secondary Issue- NCD bonds are listed on NSE or BSE or both sometimes after the public issue. You can invest in these bonds like you invest in your shares.

How does it work?

A host of companies recently offered non-convertible debentures for investors. Some of these include India Infoline, Religare etc. these are the companies that raise money by the way of issuing NCDs for a period ranging from 1 to 5 years and also offer a fixed coupon for the rate of interest.