Non Convertible Debentures (NCDs)
Non-Convertible Debentures (NCDs) have emerged as one-stop solution that continuously instills the investor's faith in investments through a mix of risk-return profile & ease of liquidity.
Simply put, NCDs are fixed income debt instruments issued by a company wherein a company agrees to pay a fixed rate of interest on your investment for a specified period in order to raise money from market for business purposes. As the name suggests, these debentures cannot be converted into shares of issuing company unlike convertible debentures. Interest on NCDs is paid at different time period like quarterly, semi-annually or annually. They also have an option of cumulative interest in which case interest is cumulated & paid on maturity
An NCD can be secured or unsecured. Secured NCDs are backed by the issuer company's assets to fulfill the debt obligation unlike unsecured NCDs. The NCD issues are rated by credit rating agencies like CRISIL, ICRA, FITCH, and CARE to ensure the company's ability to service the debt on time & lower default risk.
- Mandatory by SEBI
- Easy Portfolio Management
- Security of Equity Investments.
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Tax Implications of NCD
- Held Till Maturity - Interest earned is added to the total income & taxed at marginal rate of income tax depending on the tax-slab you belong to.
- Sold on exchange before one year - Short Term Capital Gains Tax at applicable rates depending on the tax slab you fall into
- Sold on exchange before maturity but after one year - Long Term Capital Gains Tax at 20% with indexation & 10% without indexation
Benefits of Investing In Non-Convirtable Debentures
- Listing of NCDs on exchanges like NSE & BSE provides liquidity to your investments
- No tax Deducted at Source (TDS) on listed debentures
- Investment tenure ranging from 2 to as much as 20 years provides you with ample options to fulfill your financial goals
- Unlike FDs, NCDs have limited lock-in period which makes them attractive as far as liquidity is concerned
- Ratings by agencies like CARE, FITCH, CRISIL, ICRA enables you to assess the quality of debt papers before investment
- Option of holding bonds in 'Demat Form' makes your investments easy to handle & monitor
How to Invest in
Public Issue: During the public issue of the bonds, you can invest in them by submitting a physical form furnishing the details as requested. Also, with www.kotaksecurities.com: you can make an investment online & enjoy the ease of investing
Exchange: Post the public issue; these bonds are listed on NSE or BSE or at times on both. You can invest in these bonds through your Kotak Securities trading account the way you invest in shares.
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Introduction of Unified Payments Interface (UPI) mechanism and Application through Online interface and Streamlining the process of Public issues of securities namely Debt securities, Non-convertible redeemable preference shares, Securitised Debt Instruments and Municipal Debt Securities: UPI is an instant payment system developed by the NPCI. In case of an offline request i.e. physical request form, an investor may submit the bid-cum-application form and use his / her bank account linked UPI ID for the purpose of blocking of funds, if the application value is Rs.2 lac or less. KSL shall upload the bid on the Stock Exchange bidding platform. The application amount would be blocked through the UPI mechanism in this case. You may refer to the circulars here. In case of any queries, you may get in touch with our designated customer service desk.