What Are High-Yield NCDs? A Beginner’s Guide to Safer Fixed-Income Investing

Published on December 16, 2025 | 3 min read

When companies fall short on capital to fulfil their regular working capital requirements, they have two options: Borrow from a bank or issue corporate bonds. Generally, companies prefer issuing corporate bonds as the interest cost of loans is higher than that of bonds.

There are different types of corporate bonds issued by companies, including High-Yield Non-Convertible Debentures. Let’s understand in detail what High-Yield NCDs are and what makes them a beginner’s favorite debt instruments to invest in.

What are Non-convertible Debentures?

Non-Convertible Debentures, also known as NCDs, are a type of unsecured bond issued by companies looking for capital to meet their short-term financial requirements. NCDs cannot be converted to equity in the future, hence involve low risk compared to convertible bonds. These types of bonds are not backed by any collateral, investors buy these bonds based solely on the creditworthiness of the company.

Open FREE Demat Account within minutes!

Join now

Credit rating agencies such as CRISIL, CARE and ICRA, etc, provide credit ratings to unsecured corporate bonds based on a comprehensive analysis of the company’s financial health, cash flows, existing debt and risk involved, among other factors.

The credit ratings are categorised as follows:

An AAA rating is given to corporate bonds that carry a lower risk of default and represent the company’s financial strength and capability to pay off its debt.

An AA rating is given to high-quality bonds with a low risk of default. These companies are capable of fulfilling their debt obligations.

A rating is given to corporate bonds with a strong capacity to pay off the debt but is sensitive to unfavorable conditions.

A BBB rating is given to bonds that carry high risk and are more sensitive to unfavorable situations.

BB rating is the lowest rating given to bonds carrying a higher risk of default but also offering higher yields.

What Are High-Yield Non-Convertible Debentures?

High-yield NCDs are corporate bonds that offer fixed income with higher interest rates of around 10-13%, more than Fixed Deposit returns. Since high-yield NCDs offer higher returns, they carry significant risks as well because these bonds are issued by companies with lower credit ratings. This means there’s a higher chance of the company defaulting on the bonds issued, leaving investors at a loss.

High-Yield NCDs are becoming popular among risk-averse investors looking for fixed income that precedes FD returns. But it is crucial to understand the risk involved before investing in High-Yield NCDs and ensure you don’t end up buying “junk” bonds.

Features of High-Yield NCDs

High-Yield NCDs attract investors because of their fixed income factors but there are other features you should know.

High Risk & High Return

High-Yield NCDs belong to companies with low ratings, meaning the company isn’t financially stable and may default on the bonds. To compensate for the risk borne by investors, such companies offer NCDs at higher interest rates.

Flexible Tenure

Investors can choose the maturity periods and interest payout frequency based on their income requirements and plans. Making High-yield NCDs suitable for achieving short-term and long-term financial goals.

Tax Benefits

The interest you earn on your High-yield NCDs is taxed at your income tax slab. If you sell your NCDs before 12 months, short-term capital gain tax will be applicable at your income tax slab. Whereas, if you sell your NCDs after 12 months, Long-Term Capital Gain Tax of 12.5% is applicable without indexation.

This tax structure for NCDs makes them attractive for investors in higher tax brackets, as LTCG tax is fixed and comparatively lower than the income tax slab applicable to them.

Things to Consider Before Investing in High-Yield NCDs as a Beginner

Despite the attractive features of High-Yield NCDs, there are certain things you need to consider before investing in them.

Risk Involved

High-yield NCDs involve high risk, so assess your risk tolerance and comfort level with the risk of potentially losing your entire capital before you decide to invest in them.

Company’s Financial Health

Look beyond the high return and evaluate the financial health of the issuer. Assess the company’s debt-to-equity ratio, financial performance, profitability and revenue growth before investing.

Diversification

Mitigate the risk of high-yield NCD investments by diversifying your investments across different companies and sectors. Avoid concentrating your entire investment in a single NCD issuer.

Liquidity

If you buy listed NCDs, you can sell or trade them on the stock exchanges such as BSE and NSE. But check the trading volume of the issuer’s previous NCDs to assess its liquidity.

High-Yield NCDs are high-risk, high-reward investments and suitable for people who prefer to invest in debt instruments instead of equities. Though NCDs are gaining popularity among young investors due to their attractive features, it’s crucial to assess the risks involved and understand if it aligns with your risk tolerance and financial goals.

About Author

Mariyam Sara

Sub-Editor

holds an MBA in Finance and is a true Finance Fanatic. She writes extensively on all things finance whether it’s stock trading, personal finance, or insurance, chances are she’s covered it. When she’s not writing, she’s busy pursuing NISM certifications, experimenting with new baking recipes.

Read more from Mariyam

About Upstox

Upstox is a leading Indian financial services company that offers online trading and investment services in stocks, commodities, currencies, mutual funds, and more. Founded in 2009 and headquartered in Mumbai, Upstox is backed by prominent investors including Ratan Tata, Tiger Global, and Kalaari Capital. It operates under RKSV Securities and is registered with SEBI, NSE, BSE, and other regulatory bodies, ensuring secure and compliant trading experiences.