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NCS / Bonds

What is a Non-Convertible Debenture (NCD)?

Whenever a company wants to raise money from the public, it issues a debt paper for a specified tenure, where it pays a fixed interest on the investment. This paper is known as a debenture. A Non-Convertible Debenture (NCD) does not have the option of conversion into shares, and on maturity, the principal amount along with accumulated interest is paid to the holder of the instrument.

What is a Bond?

A Bond is a fixed-income investment in which an investor loans money to an entity (corporate or government) that borrows the funds for a defined period at a variable or fixed interest rate. Bonds are used by companies, municipalities, states, and sovereign governments to raise money. Owners of bonds are debt holders or creditors.

Benefits of Investing in NCDs

  • 📌 Long-Term Capital Gains – Listed NCDs retain long-term capital gain benefits if sold after a year.
  • 📌 Tax Efficiency – Gains are taxed at 10.30% (indexation benefits are not available for bonds and debentures).
  • 📌 Better Than Debt Mutual Funds – Unlike debt mutual funds, NCDs become long-term capital assets after just one year instead of three years.
  • 📌 Higher Tax Benefits – Investors in the highest tax bracket (30%) gain more tax benefits from NCDs than from Debt Mutual Funds or Fixed Deposits when investing for one to three years.