Non-convertible debentures fall under the debt category. They cannot be converted into equity or stocks. NCDs have a fixed maturity date and the interest can be paid along with the principal amount either monthly, quarterly, or annually depending on the fixed tenure specified. They benefit investors with their supreme returns, liquidity, low risk and tax benefits when compared to that of convertible debentures.
Non convertible debentures are issued by the company so as to raise money from the public. It is for a specific tenure where the company pays a fixed interest on the investment. NCDs cannot be converted into shares. On maturity, principal amount along with interest will be paid. Agencies such as CRISIL, ICRA, CARE and Fitch Ratings give ratings to the company that raise money through NCD.
Taxation: NCDs carry tax implications depending on the tax bracket the investor falls under. If NCDs are sold within a year or lesser STCG will be applicable as per the income tax slab rate. If the NCDs are sold after a year or more or before the maturity date, LTCG will be applicable at 20% with indexation.
Credit rating: Companies are ranked by credit rating agencies such as CRISIL, CARE etc. To determine the potential of a company, it’s rating plays a major role. Higher credit rating means that the company has the ability to fulfil credit obligations. However, low credit rating means that the company has high credit risks involved. If any issuing company fails to make payments then the rating agencies give them lesser ranking.
Interest: NCDs offer high interests. The interest usually ranges from 8% to 12%. Interest payouts are either monthly, quarterly, half-yearly or annually. NCDs do offer cumulative payout option, as well.
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