What are corporate bonds and NCDs?
A non-convertible debenture (NCD) is a loan you give a company. In return, it pays interest on fixed dates and repays your principal at maturity. "Non-convertible" simply means it cannot be turned into shares. NBFCs, housing finance companies, banks and other businesses raise money this way, and listed issues are regulated by SEBI.
"Senior secured" refers to two layers of protection. The debt ranks ahead of junior lenders and shareholders, and it is backed by a charge on the company's assets, such as its loan book or property, with the security cover spelt out in the offer document. These protections help, but your money still depends on the company being able to pay.
How NCD investing works in India
There are two main routes:
- Public issues — a company opens an issue for a few days, much like an IPO. You apply through your broker or bank using ASBA, and the NCDs are credited to your demat account and listed.
- Secondary market — bonds already listed can be bought on NSE and BSE, or through online bond platforms. The price depends on prevailing interest rates, the issuer's credit standing and the time left to maturity.
An illustrative example: a bond with a ₹1,000 face value and a 9% coupon pays ₹90 a year. If you buy it at ₹1,020, your yield is below 9%; at ₹980, it is above 9%.
Who should consider NCDs
Direct bonds suit investors who want a known income schedule and are willing to study the issuer before investing. They are usually most useful when held to maturity. If you would rather not assess individual companies, a debt mutual fund spreads the risk across many issuers, though its returns are market-linked.
Things to compare before you choose
| Factor | What to look for |
|---|---|
| Rating and outlook | Current rating, recent changes, ratings from more than one agency |
| Security | Secured or unsecured, security cover, what assets are charged |
| Seniority | Senior or subordinated; perpetual and tier II debt carry more risk |
| Yield to maturity | Not just the coupon; include price and accrued interest |
| Tenure and options | Maturity date, call and put dates |
| Issuer health | Profits, borrowings and, for NBFCs, asset quality |
Keep any single issuer to a modest share of your portfolio. Investments in securities markets are subject to market risks; read all related documents carefully. Our team can lay out several issues side by side and help with applications and tracking.
