NCDs (Non-Convertible Debentures) and Bonds:
Your Guide to Investing for Stability
NCDs and bonds are among the safest instruments available, providing assured returns with lower risk. With a volatile financial climate, it is the priority for most investors to find investment opportunities that are safe as well as provide consistent returns. These debt securities have become increasingly popular for their diversification advantages.
In this blog by VSRK Capital, an AMFI Registered Mutual Fund Distributor, we’ll explore the difference between these two instruments, their benefits, and how to choose the right one for your investment portfolio. For a quick comparison, check out our comparison table below.
What Are NCDs (Non-Convertible Debentures) and Bonds?
NCDs i.e. Non Convertible Debentures meaning fixed income securities floated by companies to raise money. They are different from convertible debentures, as these cannot be converted into equities.
Conversely, bonds are debt instruments floated by corporations, municipalities, or governments. Investors provide funds for a specified time in return for periodic interest and return of capital at maturity.
Understanding the Difference: NCDs (Non-Convertible Debentures) and Bonds
Let's analyze how NCDs and bonds vary:
- Issuer: Corporations usually issue NCDs. Governments and corporations issue bonds.
- Security: NCDs can or cannot be guaranteed. Government bonds are usually supported by sovereign guarantee.
- Liquidity: Bonds tend to be more liquid in the secondary market compared to NCDs.
- Returns: NCDs can provide greater returns because of greater credit risk.
- Conversion Option: NCDs i.e. non convertible debentures meaning, they are not convertible; bonds can occasionally include conversion options.
Why Consider NCDs (Non-Convertible Debentures)?
Non convertible debentures meaning are merely debentures that are debt securities and do not have the provision to convert into shares. Here's why you may prefer them:
- Greater Interest Rates: NCDs provide higher returns than bank fixed deposits, so they are a favorite among investors looking to earn higher fixed income returns.
- Fixed Maturity: With maturity at specified dates, NCDs are a good fit for medium-term goals and enable improved cash flow planning.
- Scheduled Income: Investors get regular returns, which make NCDs ideal for those who require regular income such as retirees.
- Listed on Exchanges: Certain NCDs are listed, providing liquidity and hassle-free exit prior to maturity if required.
- Credit Ratings: Agencies' ratings assist in assessing issuer credibility, which helps the investor choose safer NCDs.
Benefits of Investing in Bonds
Corporate and tax free government bonds provide a number of advantages:
- Capital Protection: Government bonds are subject to very little default risk, making them a secure investment for maintaining your invested capital in the long run.
- Steady Returns: Bonds provide fixed interest returns, which are ideal for conservative investors seeking a constant cash inflow.
- Tax Benefits: Tax free government bonds provide tax-free returns, which greatly boost your after-tax returns.
- Diversification: Adding bonds to your investment portfolio decreases total volatility and cushions the impact of fluctuations in the stock market.
- Easy to Understand: With fixed maturity and interest, bonds are simpler and easy to understand than tricky market instruments.
How to Buy NCD Online
Purchasing NCDs has become simpler because of online platforms. If you're curious about how to buy NCD online, here's a step-by-step guide:
- Demat Account: Make sure to have a demat account through a SEBI-registered broker
- Check Issue Details: Go to issuer website or market platforms to view upcoming NCDs
- Apply Online: Via your broker or directly through the issuer's platform
- Allotment & Listing: After allotment, NCDs are listed and can be traded
VSRK Capital can provide you with end-to-end support to purchase NCDs online. Contact Us for personalized assistance.
Types of Bonds to Explore
Investors have several types of bonds to invest in:
- Tax Free Government Bonds: These are specialized, long-term investments with no tax on the interest received. Excellent choice for high-income earners.
- Corporate Bonds: By private and public sector firms, these yield a higher return compared to government securities.
- Bond Mutual Funds: Mutual funds invested in a portfolio of bonds. Bond mutual funds provide liquidity, professional management, and diversification.
NCDs (Non-Convertible Debentures) and Bonds
Both are fixed income but differ in structure and risk:
| Feature | NCDs | Bonds |
|---|---|---|
| Risk Level | Moderate to High (credit risk) | Low to Moderate (diversified) |
| Liquidity | Medium (depending on listing) | High (open-ended structure) |
| Returns | Fixed | Market-linked |
| Diversification | Low | High |
| Management | Investor-led | Professionally managed |
Who Should Invest in NCDs (Non-Convertible Debentures) and Bonds?
These are suitable for:
- Retirees seeking regular income
- Conservative investors who wish to avoid market fluctuation
- Investors who seek tax efficiency (through tax free government bonds)
- Individuals who require fixed returns for short- to medium-term objectives
Risk Factors to Consider
Though generally safe, consider the following risks:
- Credit Risk: If the issuer goes bust, you could lose principal or interest—always see credit ratings prior to NCD and bond investment.
- Liquidity Risk: NCDs are not always liquid in secondary markets, so it is difficult to exit prematurely without accepting concessions on price.
- Risk of Interest Rates: Bond prices may decline due to higher interest rates, which could affect returns if you have to sell your bond too soon.
- Call Risk: Companies can call back NCDs pre-emptively, shortening your anticipated interest earnings—affects planning for long-term returns.
For a more in-depth look at these concepts, check out this external resource on debentures. VSRK Capital offers personalized guidance for effective management of these risks. Discuss with us today for investment planning assistance.
Why VSRK Capital for NCDs (Non-Convertible Debentures) and Bonds Investments?
As a reliable AMFI Registered Mutual Fund Distributor, VSRK Capital provides:
- Experience in Fixed-Income Instruments: We lead investors through bonds and NCDs with extensive knowledge, providing safer, stable, and return-based investment solutions that meet specific requirements.
- Customized Portfolio Suggestions: Our advisors prepare fixed-income portfolios based on your goals, risk tolerance, and time horizon, making proper asset allocation for sustained growth.
- Assistance in NCD and Bond Mutual Fund Choices: We help choose best-performing NCDs and bond mutual fund, striking a balance of risk and return for wealth protection and passive income.
- Online Support for Application Process: We ease the process of purchasing NCD online, allowing you to apply smoothly through online channels with end-to-end support at every step.
- Research on Tax Free Government Bonds: Stay updated with our coverage of government bonds that are tax free so that you invest in the most tax-savvy, secure government-backed securities.
- Guidance for Mutual Funds: We also provide expert guidance for mutual fund investments, helping you start your investment journey with us.
Visit our website VSRK Capital, or click on our Contact Page for assistance. We can also be found on Google My Business.
FAQs
1. What is the distinction between NCDs and bonds?
NCDs are non-convertible debt securities issued by companies. Bonds can be issued by companies or governments and have the potential for tax-free income.
2. Is investing in NCDs safe?
Yes, if you invest in high-rated NCDs. Always purchase credit ratings first.
3. How to buy NCD online?
Open a demat account, look for upcoming issues, and apply through your broker or issuer's website.
4. Are bond mutual funds superior to fixed deposits?
They provide better liquidity and returns, but return is market-linked.
For more information on the risks, click here. Begin your fixed-income experience today with VSRK Capital and maximize NCDs and bonds for secure and tax-effective returns.
