Understanding NCDs and Corporate Bonds
Companies raise debt through NCDs and bonds that can pay more than FDs — with more risk. Here’s what to know.
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Companies borrow from the public by issuing bonds and debentures. A Non-Convertible Debenture (NCD) is a common one — a fixed-income instrument that pays regular interest and cannot be converted into equity (unlike a convertible debenture).
How NCDs and corporate bonds work
You lend to the company for a fixed term at a stated coupon rate, receiving periodic interest and your principal back at maturity. They often offer higher yields than FDs, compensating for higher risk. Some are secured (backed by company assets) and some unsecured.
The key risk — credit quality
The main risk is default. Always check the credit rating (e.g. AAA is safest; lower ratings pay more but risk more) and the company’s financial health. A higher interest rate is usually a sign of higher risk, not a free lunch.
How to invest
- Public NCD issues — subscribe when a company launches one.
- Secondary market — buy listed bonds/NCDs through your demat account.
- Corporate bond funds — a diversified, professionally managed basket, reducing single-issuer risk.
NCD vs FD
NCDs can pay more but lack the deposit-insurance safety of a bank FD and carry issuer credit risk. Diversify and don’t chase the highest coupon blindly. Education only, not a recommendation.
