- IIFL




Written by Web Desk Team | Published :June 15, 2023 , 8:40 am IST

Facts to consider before investing in Non-convertible debentures

Non-Convertible Debentures (NCDs) have gained popularity among investors in India recently due to their fixed income potential and relatively lower risk compared to equity investments. However, before investing in NCDs, it is crucial to understand the process and consider various factors to make informed investment decisions. In this article, we will provide a comprehensive guide on how to invest in NCDs in India and highlight the key factors to consider before committing your funds.

  1. Research and Understand NCD Offerings

Before investing in NCDs, it is essential to research and analyze the available options. Consider factors such as the issuing company’s reputation, financial stability, credit rating, and track record. Understanding the specifics of each NCD offering is crucial to make an informed investment decision.

  1. Assess Credit Rating

NCDs are assigned credit ratings by recognized rating agencies, indicating the issuer’s creditworthiness and default risk. Evaluate the credit rating assigned to the NCDs and consider your risk tolerance before making an investment.

  1. Determine Investment Tenure

Consider your investment horizon and financial goals while selecting NCDs. NCDs come with various tenures, ranging from a few months to several years. Assess whether the tenure aligns with your investment objectives, whether it’s short-term liquidity or long-term wealth creation.

  1. Evaluate Interest Rates and Payment Frequency

Compare the interest rates offered by different NCDs. Higher interest rates may indicate higher risk. Additionally, consider the interest payment frequency, whether it’s annual, semi-annual, or cumulative, based on your cash flow requirements.

  1. Liquidity and Listing

Check if the NCDs are listed on recognized stock exchanges in India. Listed NCDs provide liquidity, allowing you to buy or sell them before maturity. However, if you can hold the investment until maturity, non-listed NCDs may offer higher interest rates.

  1. Tax Implications

Understand the tax implications associated with investing in NCDs. Interest income from NCDs is subject to taxation based on your income tax bracket. Evaluate the tax efficiency of the NCDs and consider the impact on your overall tax liability.

Conclusion

Investing in Non-Convertible Debentures (NCDs) in India can be a rewarding option for investors seeking fixed income with moderate risk. However, careful consideration of the factors mentioned above is crucial to make informed investment decisions.

 

 

MORE News