NCD: Fixed deposits in banks have long been the preferred investment option for investment. However, at this time due to low interest on FD, its attractiveness has reduced. Apart from this, due to the boom in the stock market, there is panic in the minds of investors. In such a situation, they are looking for some other option, where they can get better and assured return on investment. NCDs (Non-convertible Debentures) are a better option for such investors.
After the Corona epidemic, the economy is slowly coming back on track, so many companies are issuing NCDs to raise capital from the market. On this, interest is available up to 9-10 percent at a higher rate than FD. However, despite getting high returns, one should not invest in them without thinking.
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NCDs are listed in the stock market
- Corporate companies issue NCDs to raise debt which cannot be converted into equity.
- Its maturity date is fixed in advance and interest is paid in lump sum at the time of maturity on monthly, half yearly and yearly basis. Money can be invested in this for up to 10 years.
- Most of the NCDs are issued in multiples of one thousand rupees.
- When companies declare NCDs, they can invest in it. Apart from this, if all NCDs are listed on the exchange, then investors can invest directly through the secondary market apart from the company.
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Keep these things in mind before investing
- Investments in NCDs have a tenure before which they cannot be withdrawn. After the sale is made, companies do not take it back. However, you can definitely withdraw your money in the secondary market. You can sell it when new buyer is found on the exchange.
- It is necessary to have a demat account for investing in NCDs.
- Before investing money, find out whether the NCD is secured or not. By investing in secured NCDs, investors get the right to recover money by selling the assets of the company.
- Investment in NCDs is not exempt under section 80C of the Income Tax Act, 1961. Short term capital gains tax as per the income tax slab on sales before one year and long term capital gains tax of 20 per cent with indexation benefit on sales thereafter. Apart from this, the same tax is payable on the interest earned on NCDs as on FDs.
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- Companies are rated by credit rating agencies like CRISIL and CARE, on the basis of which it is better to take an investment decision in NCDs. This rating gives an idea of the credit risk of the company as low credit risk means that the credit risk of the company is very high. However, do not take a decision only by looking at the rating, but also look at the management and working of the company because the rating is not necessary to remain intact.
- Investing in NCDs earns more interest than FDs. Unsecured NCDs earn interest at a higher rate than secured NCDs, but in case the company defaults on payments to the unsecured NCDs, they are not paid by selling the company’s assets.
(input: cleartax)
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