Invest in NCD - Non Convertible Debentures

Non-convertible debentures (NCD) are fixed-income instruments, usually issued by high-rated companies in the form of a public issue to accumulate long-term capital appreciation. They offer relatively higher interest rates when compared to convertible debentures.

Category I (Institutional Category)

• Public Financial Institutions, Statutory Corporations, Commercial Banks, Co‐operative Banks and Regional Rural Bankswhich are authorized to invest in NCDs.
• Provident Funds, Pension Funds, Superannuation Funds and Gratuity Fund, which are authorized to invest in NCDs.
• Venture Capital Funds and/or Alternative Investment Funds registered with SEBI.
• Insurance Companies registered with IRDA.
• National Investment Funds.
• Mutual Funds.

Category II (Non Institutional Category)

• Companies; bodies corporate and societies registered under applicable laws in India and authorized to invest in the NCDs.
• Public/Private Charitable/Religious trusts which are authorized to invest in NCDs.
• Scientific and /or industrial research organizations; which are authorized to invest in the NCDs.
• Partnership firms in the name of partners; and
• Limited Liability Partnership formed and registered under the provisions of the LLP Act, 2008 (No.6 of 2009).

Category III (Individual Category)

• Resident Indian Individuals.
• Hindu Undivided Families through the Karta

The following categories of persons, and entities, shall not be eligible to participate in the Issue and any Applications from such persons and entities are liable to be rejected:

• Minors without a guardian *;
• Foreign nationals, Non‐Resident Indians (NRI) inter‐alia including any NRIs who are (i) based in the USA, and/or, (ii) domiciled in the USA, and/or, (iii) residents/citizens of the USA, and/or, (iv) subject to any taxation laws of the USA;
• Persons resident outside;
• Foreign Institutional Investors;
• Foreign Portfolio Investors;
• Qualified Foreign Investors;
• Overseas Corporate Bodies; and
• Persons ineligible to contract under applicable statutory/regulatory requirements.

*Applicant shall ensure that guardian is competent to contract under Indian Contract Act, 1872

Applications may be made in single or joint names (not exceeding three). Applications should be made by the Karta in case the Applicant is an Hindu Undivided Family (HUF) . If the Application is submitted in joint names, the Application Form should contain only the name of the first Applicant whose name should also appear as the first holder of the depository account held in joint names. If the depository account is held in joint names, the Application Form should contain the name and PAN of the person whose name appears first in the depository account and signature of only this person would be required in the Application Form. This Applicant would be deemed to have signed on behalf of joint holders and would be required to give confirmation to this effect in the Application Form. Please ensure that such Applications contain the PAN of the HUF and not of the Karta. In the case of joint Applications, all payments will be made out in favour of the first Applicant. All communications will be addressed to the first named Applicant whose name appears in the Application Form and at the address mentioned therein.

Dematerialized forms of NCDs are not taxable.

NCD is neither a share nor fixed deposit. It is similar to fixed deposit in the sense that at time of redemption, the return is fixed.

Debentures can be bought and sold through secondary market. They are traded like shares

Allotment is based on "First come first serve" basis.

As per section 193 of the Income Tax Act, 1961, there is no tax deduction at source (TDS) from any securities issued by a company, in a dematerialized form and listed on a recognized stock exchange in India. However, NCDs allotted to non‐resident Indians (NRIs) will be subject to TDS as per section 195 of the Income Tax Act, 1961. For individual investors, if the NCDs are sold before a year, the profits will be added to the income of the investor and he will have to pay taxes at the same rate as per the income tax slab. For any profit made by selling NCDs after a year, tax will be paid at 10%, if indexation is not done or 20% if the indexation is done.

Amount invested by a single investor is as decided by the company and varies with the issuances. Usually investors can start investing with amounts as low as Rs 10000/.

Ratings: Rating agencies use simple alphanumeric symbols to convey credit ratings. For example, rating agencies assign credit ratings to debt obligations on three basic scales: the long‐term scale, the short‐ term scale, and the fixed deposit scale. AAA is the highest Credit rating by indicating highest safety. Higher rating indicates timely servicing of debt obligations by the issuer and lower amount of credit risk. Payback History Of Company: You must do a research and background study of the company, which is issuing the bond; after all it is your money. Check if the company has any history of default on its payment. If so it is unwise to invest in these instruments. However if the company has a good consistence history of repayment to its creditors then it is better to invest in NCDs of that company. Secured and Non Secured NCDs: If the company in whose NCDs you have invested is wound up (closes down), it’s important for you to know where you stand when the company repays its debts. The order in which the Company repays its debts depends upon the ranking of the bonds based on the security Bonds are either secured against assets or unsecured. If the bonds are secured, in the event of winding up of the company, it would sell off the assets against which the bonds were secured and repay the investor. Listing & Liquidity: Debentures (convertible and/or non convertible) can be listed on a stock exchange, providing opportunities to accumulate additionally or to sell them and exit earlier than the tenure of the debenture. But investors have to be careful about the price movement of the instruments, which in turn depends upon the interest rate movements and the applicable coupon interest rate payable on them. More the liquidity better it is for the investor. Varying Tenures: Redemption periods usually range from 2‐15 years. One should choose the tenure on the basis of his/her own personal financial goals and risk appetite. Interest Payout Options: Depending on the requirement of the investors, one could look at different interest payout options offered by NCDs such as monthly, quarterly, half‐yearly or annual interest payments.