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A Brief on Non-convertible Debentures – the IPO For Corporates

Kartik

Kartik

Nov 29, 2022

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Non-Convertible-Debentures

A Brief on Non-convertible Debentures – the IPO For Corporates

NCDs - A Short Tour

Registering a company is easy but running it successfully is a daunting task. It is not the cup of tea for a common man. Expanding a business while competing with competitors in the domestic and international market demands you to follow well-designed marketing strategies. The implementation of the right strategy at the right time is essential. A working capital and other type of funds is also necessary to run a business smoothly. Businesses can raise their essential funds by issuing NCD IPOs and more available options taking into consideration the unavoidable factors.
Companies engaged in different businesses are in the need of funds from time to time. There arises the need of funds for distinct reasons. A few of the common reasons are the need for working capital, funds for operational purposes, business expansion, and more. For a company there are multiple options to raise the necessary funds. The available sources may not be suitable for every company. The options like IPOs, NCD IPOs, Bonds, and equity stocks that a company can use to raise money depends on the type of business structure.
Before we talk about a Nonconvertible Debenture and the advantage it provides to an issuer, let us have a brief information on IPOs, NCDs, bonds, invest in non-convertible debentures.

What is NCD type IPO?

Non-convertible debentures (NCD) are those debt instrument that cannot be converted into equities or shares. The interest rate of NCD depends on the company issuing the NCDs.

Below is the list of NCDs traded on the BSE and the NSE:

AAA Rated Listed NCDs Yielding Over 9% Returns
SYMBOL COUPON RATE (%) FACE VALUE LTP (Rs) Current yield (%) CREDIT RATING MATURITY DATE
IBUCCREDIT 9.20% 1,000 910 10.11% CRISIL AAA STABLE / CARE AAA STABLE September 25, 2028
IBULHSGFIN 9.00% 1,000 937 9.61% CARE AAA / BWR AAA STABLE September 26, 2026
TATACAPHSG 8.30% 1,000 870 9.54% CRISIL AAA STABLE / ICRA AAA STABLE January 14, 2028
IBULHSGFIN 9.15% 1,000 960 9.53% CARE AAA / BWR AAA STABL September 26, 2026
IBUCCREDIT 8.84% 1,000 933 9.48% CRISIL AAA STABLE / CARE AAA STABLE September 25, 2028
IBULHSGFIN 8.79% 1,000 950 9.25% CARE AAA / BWR AAA STABLE September 26, 2026
IBUCCREDIT 8.66% 1,000 940 9.21% CRISIL AAA STABLE / CARE AAA STABLE September 25, 2023
L&TFINANCE 9.20% 1,000 1,000 9.20% CARE AAA STABLE / ICRA AAA STABLE / IND AAA STABLE March 13, 2029
IBUCCREDIT 9.00% 1,000 986 9.13% CRISIL AAA STABLE / CARE AAA STABLE September 25, 2023
L&TFINANCE 8.25% 1,000 907 9.10% CRISIL AAA STABLE / CARE AAA STABLE / IND AAA STABLE December 23, 2022

Why do companies issue NCDs (non-convertible debentures)?

There is a specific reason behind issuing NCDS. Companies generally issue NCDs when they are in need of money and wish to raise fund from the market with a fixed maturity. The duration for maturity can range between 90 days to 20 years. NCDs (non-convertible debentures) cannot be withdrawn prior to its maturity but can be traded in the secondary market.
Investors are not allowed to withdraw non-convertible debentures before maturity. You can sell your NCDs in the secondary market because NCDs are listed on the stock market.

Who can buy NCD or hold NCDs?

Independent individuals, primary dealers, banking companies, and other corporates registered in the country and unincorporated bodies.
Interest rates
The highly rated or AAA rated NCDs in India at present are offering interest rate between 9.1% to 10.1 % (yield as on Dec 2021). Remember that NCDs with higher ratings comes with high rate of interest.

Is NCD a worthwhile investment option?

As said, a product can be good for a few but not for many others. But let me tell you that NCDs from the perspective of an investor is considered an excellent choice. It is better instrument in comparison to the traditional avenues such as post-office deposits, bank fixed deposits because NCDs offers relatively higher rate of interest. Also, non-convertible debentures are considered to be an investment options with good liquidity feature.

Is non-convertible debentures tax free?

Unlike other instruments, income from NCDs also come under taxable income. Your interest income from NCDs under ‘’Income from other sources’ will be subject to tax at normal rates.

What is an IPO and why is it issued?

Initial Public Offerings (IPOs) are good for companies in many terms. An initial public offering (IPO) is a public offering under which Shares of a company are sold to investors in the institutional and retail segment.

Why is IPO issued?

Companies generally issue Initial Public Offerings (IPOs) with the aim of raising the required capital for the company for various purposes like business expansion, paying off debts, improve their public profile, or allow company insiders to diversify their holdings. Also, IPOs are issued to create liquidity by a portion or selling all their private shares as a part of the IPO.
Deepak Jasani, Head Retail Research, HDFC securities says, “a listed NCD is treated as a long-term capital asset if the same is held for more than 12 months from the date of purchase; otherwise, 36 months is considered for the NCD (unlisted) to qualify as a long-term capital asset. No indexation benefit is allowed on sale of NCDs. Long-term capital gains arising on the transfer/sale of listed NCD are subject to tax at the rate of 10 percent (without indexation). Short-term capital gains on the transfer of listed NCD (held for not more than 12 months), would be taxed as per the slab rate of the investor. Whether NCDs are sold through the exchange prior to maturity or redeemed at maturity, capital gains taxation would remain the same. In case of NCDs sold prior to maturity, the price would normally include a component of accrued interest unlike NCDs redeemed at maturity, which would be at face value. This would reduce overall tax, if long term capital asset is sold and investor falls in higher tax bracket.”

Invest in non-convertible debentures

Investing in non-convertible debentures can help you earn better return but the decision to invest completely lies with you. It is necessary to gather relevant information about NCD investment and the specific NCD you wish to invest in. Gathering details about the issuer is equally important. The information about the issuer’s creditworthiness can help you take better decisions.
Experts recommend investing in non-convertible debentures post satisfaction. Make sure you research well about the NCD bond issuer to minimize the risk of default. Your hard-earned money can be at risk. Why haste when you can spare some time to check the background, credit rating, and other details to avoid disappointment and loss of your hard-earned money.
Non-convertible debentures (NCDs) can be helpful for many investors but for a few others it would not be of that use. So, it is better you invest in NCD IPO considering your investment needs and not just because your known is investing.

How to commence investing in NCDs?

You can commence investing in NCDs in a few simple steps. You can visit bondsindia.com and register yourself for a dedicated account. Complete online your KYC, add your bank details, Demat account, and other essential information. Choose the NCD you wish to buy and initiate with the bidding in a few minutes.

Conclusion

NCDs can be secured or unsecured. Make sure you consider investing in NCDs only after you have carefully evaluated the reputation of the issuer, creditworthiness, maturity, interest rate, etc. It is your smart decision that will help you avoid risks and maximize your returns. for more information and assistance in safe investment, you can connect with our financial expert at BondsIndia.
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