Frequently Asked Questions about Non-Convertible Debentures
Non-Convertible Debentures (NCDs) are debt instruments issued by companies to raise
funds from the public. Unlike convertible debentures, NCDs cannot be converted into equity
shares of the issuing company.
Companies issue NCDs to investors for a specified period at a fixed interest rate. Investors
receive regular interest payments (coupon payments) during the tenure of the NCD, and the
principal amount is repaid upon maturity.
NCDs cannot be converted into equity shares of the issuing company, whereas convertible
debentures can be converted into equity shares after a certain period as per the terms of
the issue.
Companies issue NCDs to raise long-term funds for business expansion, capital expenditure,
working capital requirements, debt refinancing, or other corporate purposes.
NCDs can be classified based on their tenure, interest payment frequency, and whether they
are secured or unsecured. They may also be categorized as listed or unlisted, depending on
whether they are listed on stock exchanges.
Risks associated with investing in NCDs include credit risk (default risk), interest rate risk,
liquidity risk, and market risk. Investors should carefully evaluate the credit rating and
financial stability of the issuing company before investing.
Interest income earned from NCDs is added to the investor's taxable income and taxed at
their applicable income tax slab rate. TDS (Tax Deducted at Source) is deducted if the
interest income exceeds a certain threshold.
NCDs are tradable securities, and investors can sell them on stock exchanges if they are
listed. However, liquidity may be limited compared to other instruments like stocks and
bonds.
Yes, NCDs are regulated by the Securities and Exchange Board of India (SEBI), which sets
guidelines and regulations governing the issuance, listing, and trading of debt securities in
the country.
Investors can invest in NCDs through public issues or private placements offered by
companies. They can apply for NCDs through designated intermediaries such as banks,
financial institutions, and stockbrokers during the subscription period.