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NCDs sit between FDs and equities. 8.5% to 13% yields depending on credit rating. Listed on exchanges. Tax rules shifted in 2024 – suddenly they look better. This guide breaks down what they are, how you invest, what can go wrong. Yields beat FDs when you run the numbers properly.
What Are Non-Convertible Debentures?
Simple version: you lend money to a company. They pay you fixed interest. At maturity, they return your principal. Unlike equity – no upside from stock price gains, no downside either.
โน43 lakh Cr
“Non-convertible” means no conversion to equity. Pure debt. No share price upside. No share price downside either.
Listed on NSE or BSE (usually). Means you can sell on secondary market before maturity. Liquidity exists. Unlike bank FDs, you’re not locked in.
How Do NCDs Actually Work?
Understanding the mechanics helps you make better investment decisions.
How They’re Issued
Company wants to raise debt. They launch NCDs via public issue (open to everyone) or private placement (institutional only). Retail investors use public issues.
The company decides:
- Face value: usually โน1,000 each
- Coupon: the fixed interest (e.g., 10% annually)
- Tenure: 3, 5, 7, or 10 years typical
- Credit rating: CRISIL, ICRA, Care Ratings assess it
- Interest payment: annual, semi-annual, or quarterly
How It Works in Practice
You buy โน1,000 NCD at 10% coupon, 5-year tenure. Each year you get โน100 interest. At maturity, principal comes back. Need cash before that? Sell on BSE/NSE at market price (could be above or below โน1,000 depending on rates and credit quality).
Types of NCDs
Two main kinds: secured and unsecured.
Secured NCDs
Secured NCDs backed by company assets (land, buildings, equipment). If default, you have a claim on those assets. Lower risk. Lower yield.
9-10.5% p.a.
Secured NCDs are most common in real estate, infrastructure, and finance companies.
Unsecured NCDs
Unsecured NCDs have no asset backing. In default, you’re behind banks and secured creditors. Higher risk. Higher yield.
10-13% p.a.
Cumulative vs Non-Cumulative
Most NCDs are non-cumulative: you get interest during tenure. Cumulative ones (rare) accrue and compound, paid only at maturity. Retail investors use non-cumulative.
Current NCD Yields
Yields vary by credit rating and tenure. Here’s current market rates:
| Credit Rating | Secured NCD Yield | Unsecured NCD Yield | Typical Tenure |
|---|---|---|---|
| AAA (Highest Quality) | 8.5-9.5% | 10-11% | 3-5 years |
| AA (Very Strong) | 9-10.5% | 10.5-12% | 3-7 years |
| A (Good Quality) | 10-11% | 11-12.5% | 5-10 years |
| BBB (Adequate) | 11-12% | 12-13% | 5-10 years |
Ballpark only. Actual yields move with rate cycles, company news, market demand.
โน45,000+ Cr
NCDs vs Other Fixed-Income Investments: A Comparison
How do NCDs stack up against alternatives?
| Factor | NCDs (AA-rated) | Bank FDs | Government Bonds | Debt MFs |
|---|---|---|---|---|
| Typical Yield | 9-10.5% | 6.5-7.5% | 5.5-6.5% | 7-8.5% |
| Liquidity | Good (listed, buy/sell anytime) | Poor (early withdrawal penalty) | Good (secondary market) | Excellent (daily redemption) |
| Credit Risk | Moderate (company default) | Very Low (bank regulated) | Negligible (sovereign) | Low-Moderate (portfolio diversified) |
| Interest Rate Risk | Moderate (price fluctuates) | None (fixed rate) | Moderate (price fluctuates) | Moderate (portfolio adjusted) |
| Tax Treatment (if held >12 months) | 12.5% LTCG (indexed) | Slab rate (ordinary income) | 12.5% LTCG (indexed) | Varies by fund type |
| Tax Treatment (<36 months) | Slab rate (ordinary income) | Slab rate (ordinary income) | Slab rate (ordinary income) | Slab rate (ordinary income) |
| Minimum Investment | โน1,000 onwards | โน1,000 onwards | โน10,000 onwards | โน100-โน500 onwards |
| Best For | Retail investors seeking yield + liquidity | Conservative, capital preservation | Zero-risk portfolios | Tax-efficient passive debt |
The takeaway: NCDs sit between FD safety and bond yield. Moderate credit risk. Better returns. They belong in a diversified portfolio.
NCD Taxes: The 2024 Rule Change
Taxation shifted in 2024. This matters a lot for your net returns.
Interest Income
Coupon interest taxed as ordinary income at your slab rate (5%, 20%, or 30%). No special breaks.
Capital Gains (If You Sell Before Maturity)
This is the 2024 shift:
- Held 12 months or less: Taxed as ordinary income at slab rate.
- Held over 12 months: Taxed at flat 12.5% (indexation benefit removed as of April 2024).
No inflation adjustment anymore on cost basis. 12.5% is still lower than slab rates for high earners, but the advantage shrunk.
Listed vs Unlisted
Listed NCDs (BSE/NSE) get capital gains treatment. Unlisted NCDs (private placements) taxed as ordinary income. Listed ones are tax-efficient by default.
How to Invest: Three Routes
1. Public Issues (Primary Market)
Company launches NCD public issue. You apply through demat or broker (like IPO):
- Open application on broker platform
- Enter quantity and amount
- Submit (no payment needed yet; blocked on allotment)
- Await allotment; credited to demat on listing
Advantage: locked-in coupon, no markup. Disadvantage: you might not get allotted if it’s oversubscribed.
2. Secondary Market (BSE/NSE)
Post-listing, buy/sell NCDs like shares on the exchange. Settles T+1.
Advantage: anytime access, price discovery. Disadvantage: bid-ask spread (usually 0.1-0.5%) and broker commissions.
+25%
3. NCD Mutual Funds
Mutual funds pool capital into NCD baskets. You get diversification, active credit monitoring, tax-efficient rebalancing. Downside: expense ratios 0.3-0.6% annually and less transparency than direct investment.
Credit Ratings: Your Safety Filter
Credit rating is the most important thing. CRISIL, ICRA, Care Ratings, Brickwork assess whether the issuer can pay you back.
| Rating | Interpretation | Risk Level | Default Probability |
|---|---|---|---|
| AAA | Highest credit quality, minimal risk | Very Low | < 0.1% |
| AA | Very strong, upper-medium grade | Low | 0.1-0.5% |
| A | Good quality, medium grade | Moderate | 0.5-2% |
| BBB | Adequate, lower-medium grade (investment grade) | Moderate-High | 2-5% |
| Below BBB | Speculative grade (sub-investment) | High-Very High | > 5% |
60% AA and above
Stick to BBB and above. Below that (BB, B, C) carries raised default risk. Experienced investors only if they’re willing to burn money.
Risks to Understand
Credit Risk
Company defaults on interest or principal. Biggest risk. Only buy AA+ and above unless you know credit analysis deeply.
Interest Rate Risk
Need to sell before maturity? Price depends on current rates. Rates rise = your fixed coupon looks worse = price falls. Rates fall = price rises. Long-tenure NCDs (7-10 years) carry sizeable rate risk.
Liquidity Risk
Not all NCDs trade actively. Low-volume issues are hard to exit quickly. Check average daily trading volume on BSE/NSE before you buy.
Call Risk
Some NCDs have call options (company can redeem early, usually after 3 years). Rates fall and company calls? You lose reinvestment at higher rates.
Frequently Asked Questions
Q: Are NCDs safe?
A: AA and above are relatively safe. Strong financials, low default history. Secured NCDs safer than unsecured. Read the rating rationale – that’s where the real risks are explained.
Q: Can I lose my principal?
A: Yes, if the company defaults. You rank ahead of equity shareholders, usually recover something from asset sales or restructuring. AAA-rated NCDs have < 0.1% default probability.
Q: How much should I invest?
A: Depends on your age, risk tolerance, goals. Rule of thumb: 20-40% of fixed-income allocation to NCDs. Balance with FDs and government bonds. NCDs work for yield-seeking investors without equity volatility tolerance.
Q: Primary or secondary market?
A: Primary issues (public launch) offer better pricing, no spread. Secondary market gives flexibility and price discovery. High conviction on company and coupon? Apply primary. Want flexibility or specific yields? Use secondary.
Key Takeaways
- NCDs are corporate debt: You lend to a company in exchange for fixed interest and principal repayment.
- Yields beat FDs: AA-rated secured NCDs yield 9-10.5%, vs 6.5-7.5% for bank deposits.
- Two main types: Secured (asset-backed, lower yield) and unsecured (higher yield, higher risk).
- Tax-efficient if held >12 months: Long-term capital gains taxed at 12.5% flat (though indexation benefit was removed in 2024).
- Credit rating is paramount: Stick to BBB and above for safety; AA and above for comfort.
- Liquidity via exchanges: Listed NCDs can be bought and sold on BSE/NSE, unlike FDs.
- Interest rate risk matters: If rates rise, NCD prices fall (and vice versa). This affects pre-maturity selling.
- NCDs fit the “sweet spot”: Better returns than FDs, more liquid than bank deposits, safer than equities.
What’s Next?
If NCDs interest you, start by screening issuers on the BSE or NSE website. Check the credit rating, coupon, tenure, and whether it is secured or unsecured. For first-time investors, consider starting with one or two AA-rated secured NCDs from household names (banks, real estate, infrastructure companies). Build familiarity with price movements and trading mechanics before scaling up.
For deeper analysis of specific issues, read the rating agency’s rationale report and the company’s latest financial statements. RedeFin Capital’s comparison guide also walks through returns across asset classes, and our private credit primer covers related instruments.
Disclaimer: This article is educational only and does not constitute investment advice, a recommendation, or an offer to buy or sell NCDs. Investors should conduct their own due diligence, read the rating agency reports and offer documents carefully, and consult a financial adviser before making investment decisions. RedeFin Capital does not guarantee returns or the safety of principal. Past performance is not indicative of future results. Credit ratings are subject to change.
Sources & References
- SEBI, Annual Report, 2024-25
- BSE, NCD Market Data, 2025
- BSE, Investor Data, 2025
- CRISIL, Corporate Bond Market Report, 2025
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