learn about ncds | Srei Bonds| Secured NCDs
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Faqs on NCDs

Q1. What are the different kinds of debentures?

A1. Debentures are financial instruments. They may be secured or unsecured. They may also be fully/ partly/ optionally convertible or non-convertible. The different kinds are as follows:

  • Secured Debentures: These instruments are secured by a charge on the fixed assets of the issuer company. So if the issuer fails on payment of the principal or interest amount, his assets can be sold to repay the liability to the investors.
  • Unsecured Debentures These instruments are unsecured in the sense that if the issuer defaults on payment of the interest or principal amount, the investor has to be along with other unsecured creditors of the company.
  • Fully Convertible Debentures (FCD) These are fully convertible into Equity shares at the issuer's notice. The issuer decides the ratio of conversion. Upon conversion, the investors enjoy the same status as ordinary shareholders of the company.
  • Partly Convertible Debentures (PCD): A part of these instruments are converted into Equity shares in the future at notice of the issuer. The issuer decides the ratio for conversion. This is normally decided at the time of subscription.
  • Optionally Convertible Debentures (OCD) The investor has the option to either convert these debentures into shares at price decided by the issuer/agreed upon at the time of issue.
  • Non Convertible Debentures (NCD): These instruments retain the debt character and cannot be converted into equity shares.

Q2. Why do companies issue NCD?

A2. Companies issue NCD to raise capital from public issues for a specified tenure.

Q3. Who can invest in NCDs?

A3. NCDs may be held by individuals, banking companies, Primary Dealers (PDs), other corporate bodies registered or incorporated in India and unincorporated bodies, Non-Resident Indians (NRIs) and Foreign Institutional Investors (FIIs).

Q4. Which is the best NCD option?

A4. Cumulative option seems to be the best as it offers the highest yield and allows to reinvest the interest at the same coupon rate / interest rate (i.e., there is no reinvestment risk).

Q5. Is NCD a Share or a fixed deposit?

A5. NCD is neither a share nor fixed deposit. It is similar to fixed deposit in the sense that at time of redemption, the return is fixed. 

Q6. Are NCDs taxable?

A6. Dematerialized forms of NCDs are not taxable.

Q7. Are there any special benefits for senior citizens?

A7. No, there are no special benefits for senior citizens by investing in NCD.

Q8. Are the applicants allowed to make changes?

A8. Applicants are not allowed to make changes. They can withdraw their Application at any time prior to the Issue Closing date.

Q9. What is the basis of NCD allotment?

A9. Allotment is based on “First come first serve” basis.

Q10. Where are NCDs bought from and sold to?

A10. Debentures can be bought and sold through secondary market. They are traded like shares.

Q11. Do debenture holders carry any voting rights?

A11. No. In the case of public issue of debentures, there would be a large number of debenture holders on the register of the company. As such it shall not be feasible to create charge in favour of each of the debenture holder.

Q12. Which law regulates the issue of NCD?

A12. Section 117 to Sections 123 of the Companies Act, 1956 regulates the provisions relating to debentures.

Q13. What is the minimum investment required for NCD?

A13. Amount invested by a single investor is as decided by the company and varies with the issuances. Usually investors can start investing with amounts as low as Rs 10000/-.