The NCD Route

With the growing volatility creeping into the IPO market related to the aggressive IPO pricing and above all, the equity market looking to get back to the dangerous levels, for players who want to park a part of their hard-earned money into more safe instruments with low-risk is a wise call. Now, for newbies, let me first explain what it actually means.

NCD means "Non Convertible Debentures" which is like a bond which are issued by private companies. Although, risk is involved here as well like in equity market, the risk will be lower as they give guaranteed returns on maturity like bonds. NCDs come in varied options like short term (3 yrs), medium term (4-5 yrs) and long term options (>5 yrs). Moreover, all these options will have varied method of payment of interest - annual, semi-annual, quarterly cummulative, semi-annual cummulative, annual cummulative etc.

The first question a newbie would ask is, why should I go for NCD when the same money can be parked in Bank Fixed Deposits. The answer is NCDs are best for those people who want to earn higher interest yield and still be on a safer and less-riskier path. Moreover, NCDs list and are traded on one of the stock exchanges - NSE/BSE. So, one can sell whole or part of NCDs and need not hold till the end of maturity period as well in which case the transaction will happen at the market determined rate.

The best NCDs available for grab recently were L&T Finance NCD, Shriram Transport Finance NCD, Tata Capital just to name a few. The next time there's a NCD, check out the company fundamentals and don't miss to invest in good NCDs.