Non-convertible debenture : Non convertible debenture (NCD) is a financial instrument used by companies to raise money through public issue. If you want good returns with the safety of your money, then investing in NCDs can be a better option for you. NCDs are a way for companies to raise money like an IPO, but there is a difference between the two. When a company raises money through NCDs, it takes it as a loan. Therefore, the company has to pay interest on the loan taken. NCDs have a fixed maturity date and in this, investors get returns with a fixed rate of interest.
There are two types of NCDs
There are two types of NCDs. The first in this is Secured NCDs. Secured NCDs have the security of the company. This means that if the company is not able to pay the investors their money, then the investors can recover their money by selling the assets of the company. Another type of NCD is unsecured NCDs. There is no security of the company in this. That is, if the company is not able to return their money to the investors, then it may be difficult for the investors to get their money back. Unsecured NCDs are more risk-averse than secured NCDs. Experts believe that debt instruments like NCDs offer better returns than traditional debt investments, so investors can consider adding it to their portfolio.
Digital Gold: Planning to buy digital gold in the festive season? Know these important things including tax liability before investing
Apart from credit rating, what other things are important to keep in mind before investing
Generally, to assess the quality of any NCD issue, investors look at the credit rating of the company. Credit rating is issued by rating agencies. Companies which give good ratings by rating agencies are considered the safest to invest in. However, there are many such instances where credit rating agencies have been questioned. In such a situation, the question is whether it is enough to just look at the rating of the company for investing in NCDs? Experts believe that NCDs can be a good investment option, but for this it is important to understand the risk profile and information related to NCDs, such as credit rating. According to experts, investors should avoid investing in any company only on the basis of credit rating and they should also keep these things in mind –
- NCD is secured or unsecured Before investing in NCDs, investors should check whether it is secured or unsecured. Secured NCDs have less risk. Apart from this, investors must also pay attention to the tenure of NCDs. It is good for investors if the tenure of NCDs is short in terms of risk.
- Rate of interest Before investing in any NCD, it should be checked what interest rate the company is offering. Through this, you can calculate the return after tax and inflation.
- Objective of the issueInvestors should understand the purpose for which the money is being raised. Whether the money will be used to pay off existing loans or for business purpose or capital investment. Understanding this, investors should take investment decisions.
- Experts believe that rating agencies give ratings to companies according to their opinion. A company’s rating is good, it is not a guarantee that that company will perform well in the future.
- A better way to understand any NCD issue is to understand the business quality of that company and see how diversified that company is. If the business of the company is diversified, then the risk in such companies is less for the investors.
- Experts believe that investors should not take decisions based on the current rating and should also look at the ratings of the last one or two years. With this, you will be able to understand how the overall performance of the company has been in the last few years.
- Experts say that investors should not only see the credit rating of the company, but also keep in mind which credit rating agency they are relying on for this. It is also important to pay attention to whether the credit rating agency is trustworthy or not.
Get Business News ,, latest India News ,, and other breaking news on share market, investment scheme and much more on Business Khabar. Like us on Facebook, Follow us on Twitter for latest financial news and share market updates.
.