What Are Non-Convertible Debentures (NCDs)? Features, Types & How to Invest in 2025

Non-Convertible Debentures (NCDs) are fixed-income instruments that provide investors with regular interest payouts and principal repayment at maturity—without the risk of equity market fluctuations. These debt securities are ideal for investors seeking steady income with moderate risk, especially in India’s changing interest rate environment.

When you invest in an NCD, you’re lending money to the issuing company, which agrees to pay you a fixed interest at regular intervals. They offer predictable returns and repay your principal at maturity, making them a popular choice for investors seeking steady income.

What Are Non-Convertible Debentures (NCDs)?

Non-Convertible Debentures (NCDs) are long-term financial instruments used by companies to raise money from the public. When you buy an NCD, you’re lending your money to a company, and in return, you earn a fixed interest for a specific period. After maturity, the company returns your money. The term "non-convertible" means these debentures cannot be converted into shares of the company later. 

For example, you invest ₹1,00,000 in an NCD that pays 9% annual interest for 3 years. Every year, you’ll get ₹9,000 as interest. After 3 years, you’ll receive your full ₹1,00,000 back. This predictable income is what attracts many investors to NCDs.

Types of NCDs – Secured and Unsecured

Non-convertible debentures are categorised into two main components, each offering a different level of safety and return potential. 

1. Secured NCDs

These are backed by the company’s assets, like buildings or machinery. If the company cannot pay, those assets can be sold to repay investors. These are safer but may offer slightly lower interest rates.

2. Unsecured NCDs

These are not backed by any asset. If the company fails, you may not get your full money back. They carry a higher risk, but often offer higher returns.

Bondbazaar lets you filter NCDs by type, interest rate, tenure, and credit rating, making your choice easier.

How Do NCDs Work in India? A Simple Explanation for Investors

Companies use NCDs to collect funds for purposes like expanding business or paying off older loans. As an investor, you provide your money to the company by purchasing the NCD. In return, you get:

• Regular interest payments: Monthly, quarterly, or yearly, depending on the terms chosen at the time of investment
• Principal repayment: The full amount is returned at maturity, provided there is no default by the issuer.

You will be required to have a demat account, similar to a digital locker for investments, to buy NCDs. Once issued, NCDs can also be traded on stock exchanges, like the NSE or BSE.

Who Can Invest in NCDs?

NCDs are open to a wide range of investors, as long as they hold a demat account and meet the issuer’s eligibility criteria. These may include:

• Working professionals
• Retired individuals
• High net worth investors
• Trusts, companies, and NRIs (if allowed by the issuer)

Before investing, it’s important to review the specific terms and eligibility guidelines provided by the issuing company.

Key Features of Non-Convertible Debentures

Non-Convertible Debentures come with several features that make them appealing to income-focused investors. Here are some key highlights:

1. Fixed Returns

You know exactly how much interest you’ll earn. This makes NCDs ideal for those who prefer a steady income without surprises.

2. Longer Tenure

NCDs are typically issued for 2 to 10 years. Some may go up to 20 years. Choose a tenure that matches your financial goals.

3. Tradable on Stock Exchanges

If you need to exit early, you can sell your NCD in the market. But prices may go up or down depending on market interest rates.

4. Flexible Interest Options

You can select a payment frequency that suits your cash flow needs, whether monthly, quarterly, annually, or as a lump sum at maturity. This allows for better planning and alignment with your financial goals.

5. Rated by Credit Agencies

Independent credit rating agencies, like CRISIL, CARE, or ICRA, assess the issuer’s ability to repay. Look for NCDs rated AA or AAA for safety.

How to Invest in NCDs Online via Bondbazaar

Investing in NCDs is straightforward and can be done through two primary channels:

1. Public Issue

When a company launches an NCD, apply through your broker or bank during the subscription window.

2. Stock Market

Buy already-issued NCDs from exchanges, like NSE or BSE. You’ll need a demat account and a trading account.

Bondbazaar makes it simple to explore, compare, and invest in NCDs with complete transparency and expert guidance. It also offers zero account charges, making it easier and more affordable for investors to get started.

Taxation on NCDs

• Interest Income: Taxed as “Income from Other Sources.” You’ll pay tax based on your income slab (10%, 20%, or 30%).
• Capital Gains: If you sell NCDs in the secondary market before maturity, the profits may be subject to capital gains tax:
• Within 12 months: Treated as Short-Term Capital Gains (STCG) and taxed according to your income tax slab.
• After 12 months: It is considered Long-Term Capital Gains (LTCG) and taxed at 10% without indexation benefits.

If you’re in the 10–20% slab, NCDs are more tax-friendly. Also, if you hold NCDs in a demat account, no TDS (Tax Deducted at Source) is applied.

Convertible vs Non-Convertible Debentures

Here’s a quick comparison to help you understand the key differences between Convertible Debentures and Non-Convertible Debentures (NCDs):

Must Read - Debenture vs. Bond: What's the Difference

Tips to Invest in NCD Safely

While NCDs can be a reliable source of fixed income, it’s important to invest wisely to manage risk effectively. Here are some practical tips:

• Pick NCDs from companies with high credit ratings (AA or above)
• Diversify across companies and sectors
• Choose secured NCDs if you prefer lower risk
• Match the NCD’s tenure with your goal duration
• Check if NCD has Call or Put options (this affects early redemption)
• Keep an eye on the issuer’s financial health even after investing

By knowing how NCDs function and investing sensibly, you can get regular returns without exposing yourself to unnecessary risk and thus make them a useful addition to a diversified portfolio.

Conclusion 

Non-Convertible Debentures (NCDs) are a powerful tool for investors seeking fixed returns with moderate risk. They offer steady income, higher interest than traditional bank FDs, and flexibility through tradability and various payment options. Whether you’re planning for retirement or building a balanced portfolio, NCDs can be a valuable addition. However, always check the issuer’s credit rating, your tax bracket, and the tenure before investing. Bondbazaar helps simplify your bond investment journey by providing access to reliable NCDs, expert support, and an easy-to-use interface. Smart investing begins with understanding your options, and NCDs are a great place to start.

Frequently Asked Questions

Q1. Are NCDs safer than stocks?

Yes. NCDs offer fixed interest income and are less volatile than stocks. Secured NCDs add further protection as they are backed by the issuer’s assets.

Q2. How is interest from NCDs taxed?

Interest income from NCDs is taxed under “Income from Other Sources” as per your income tax slab. If sold before maturity, capital gains tax may apply.

Q3. Can I sell my NCD before maturity?

Yes. NCDs listed on exchanges like NSE/BSE can be traded in the secondary market, offering liquidity to exit before maturity.

Q4. How do I choose the best NCD to invest in?

Look for high credit ratings (AA or above), secured debentures, suitable tenure, and compare interest rates using trusted platforms like Bondbazaar.