What is NCD (Non Convertible Debentures)?

Published on March 10, 2026 | 3 min read

Non-convertible Debentures (NCD) are a type of investment in which you lend money to a company and get interest in return. These NCDs are fixed-income instruments issued by reputable companies to raise long-term capital. It offers a higher interest rate compared to convertible ones.

NCDs are regulated by the Securities and Exchange Board of India (SEBI), which ensures that the debenture issuing companies follow all the rules and protect the interests of investors.

Investing in NCDs is considered safer than equity because it provides fixed returns to the investors. Let’s see how NCDs work, their benefits and risks, and factors to consider before investing in NCDs.

Key Takeaways

Non-Coverable debentures are fixed-income instruments which provide steady income to investors.
These debentures cannot be converted into equity.
Check the credit rating of the company before investing in debentures.
Listed debentures can be bought and sold in the secondary market.

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Understanding Non-Convertible Debentures (NCD)

When you invest in NCD, you are giving a loan to a company. In return, the company pays you interest periodically. When NCD reaches its maturity date, you get back the principal amount along with the final instalment of interest.

Example: Suppose you invest ₹1 lakh in an NCD with a 9% interest rate per annum for 3 years. So, every year, you will receive ₹9,000 as a form of interest. At the end of 3 years (maturity), you will get back the ₹1 lakh invested capital.

Companies issue NCDs to raise capital for business expansion and to fulfil other business needs. As mentioned earlier, NCDs are regulated by SEBI; along with this, a Debenture Trustee is appointed by the company, who monitors the whole process to ensure investors are treated fairly.

Types of NCD

The two main categories of NCDs are secured and unsecured.

Secured NCDs

These NCDs are backed by real estate or other assets considered collateral for the loan made to the company (called its "issuer"). The issuer must repay these loans before repaying any other debts or interest owed to bondholders.

Unsecured NCDs

These NCDs are not backed by assets or collateral. Instead, it depends on the issuer's creditworthiness and ability to repay investors if something goes wrong with business operations.

For example, a drop in profits would affect their ability to make interest payments on time without defaulting on obligations.

Key Features of NCD

There are three key features of NCDs, which you need to keep in mind before investing.

Interest

An NCD has a coupon rate determined when it's issued. The coupon rate will remain unchanged throughout its life except in the case of restructuring or redemption.

For example, if an NCD has a coupon rate of 10% per annum and matures after five years, its annual interest would be 10% for every outstanding year until maturity.

Credit Rating

An NCD's credit rating indicates the issuer's ability to repay its obligations. Credit agencies, such as CRISIL, generally assign credit ratings.

This rating is based on various factors such as the issuer's financial strength, track record of repayment of loans, etc. The higher the rating, the lower the risk of default; hence, better returns on investment.

Taxation

Individual investors will have to pay taxes at the same rate per the income tax slab if they sell their NCDs before a year has passed. The earnings will be added to the income. Tax on any gain realised by selling NCDs after one year will be charged at a rate of 10% if indexation is not applied or 20% in case of indexation.

Note: In accordance with section 193 of the IT Act, NCDs provided in DEMAT form and listed on a stock market are not subject to Tax Deduction at Source (TDS).

Benefits of Investing in NCD

One of the big reasons for investing in NCDs is due to fixed interest rates. It allows investors to generate a steady income over a long period of time without taking the risk of daily ups and downs like shares. A few of the key benefits of investing in NCDs are:

Factors to Consider Before Investing in NCD

Before investing in NCD, make sure to consider these factors:

Credit Rating

Choose companies with high ratings from credit rating agencies like CRISIL or CARE.

Debt

Avoid companies with high debt. High debt means higher risk.

Non-Performing Assets

Companies should keep aside 50% of their asset for bad loans. It shows the company is managing risk well.

Tax Slab

NCDs are good for people in lower tax slabs, because taxes impact the overall returns in higher slabs.

Risk of Investing in NCD

Investing in NCDs carries a certain amount of risk.

Company Risk

If the company faces any financial trouble, it may fail to pay interest or return the principal amount. That’s why it’s important to check the company’s credit rating before investing.

Interest Rate Risk

If the interest rate rises, your NCDs' market price might fall in the secondary market. That’s why buyers prefer to invest in new NCDs with higher payouts. But if you’re holding till maturity, interest rate risk doesn’t matter.

Inflation Risk

When inflation rises, the fixed interest from your NCD might lose its value. The rates that look reasonable today may not be sufficient in future after adjusting for inflation.

Liquidity

NCDs don’t have much liquidity in the market. If the demand is low, sellers might have to sell the NCD at a discounted price.

Non-Covertible Debentures are one of the simplest financial instruments to grow your money without taking a higher risk. They provide fixed returns on a periodic basis and give back the capital amount at maturity. However, if you want to sell the debentures earlier, you can do so by selling them in the secondary market.

About Author

Subhasish Mandal

Sub-Editor

finance professional with strong expertise in stock market and personal finance writing, he excels at breaking down complex financial concepts into simple, actionable insights. Holding a Master’s degree in Commerce, he combines academic depth with practical knowledge of technical analysis and derivatives.