Fixed Deposit Vs Non-Convertible Debentures

One of the articles in Value Research drew my attention to investment in NCD through secondary market. I understand that the returns are around 11.5 per cent per annum for a two-year maturity. The TDS is also not applicable. I view this as a better option than FDs. What are the choices available and can I invest through ICICI Securities and keep the holdings in my Demat account?
- R Ramesh

You can invest in NCDs by buying during public offer or from stock exchange through your broker, ICICI securities in your case, in a demat form.

Non-Convertible debentures (NCD) may deliver returns higher than bank FDs but they are more risky. They are not very liquid as the trading volume is low. Invest here only if you are willing to take a risk for extra return.

NCDs are corporate bonds through which companies borrow from investors and give interest for the same. They are issued for a fixed tenure and interest is paid either monthly, quarterly, annually or at the end of the tenure. As the name suggests these bonds can't be converted into equities of the company. You will get back the money invested at maturity. There are two types of NCDs- secured or unsecured. The former is less risky because if the issuing company defaults on payment, you can make a lawful claim. While you cannot make any claim with unsecured NCDs, in case of default.

This article was originally published on March 01, 2013.