Understanding NCDs - Callable vs Non-Callable

Published on December 24, 2025 | 3 min read

Non-Convertible Debentures (NCDs), for investors, are an instrument that offers a fixed rate of return. They are issued by companies to raise capital from investors. Now the question arises, if companies want to raise capital, why not issue more equity shares?

For this, it is important to understand that when a company issues more equity shares, it is giving away a part of ownership. So, the company issues NCDs because it wants money without losing ownership, control, or affecting the share price. Also, often, debt is cheaper and more flexible than equity.

When you invest in an NCD, you are giving a loan to the company and in return, the company promises to pay you a fixed rate of interest at periodic intervals (monthly, quarterly or annually).

Understanding the Basics

When investing in Non-Convertible Debentures (NCDs), one important feature to understand is whether they are callable or non-callable. The difference significantly affects your investment returns, tenure and overall experience.

What Are Callable NCDs?

Callable NCDs give the issuing company the right to stop or buy back the debentures before the maturity date. The company can exercise this call option after a specified period, known as the call protection period. For example, if you invest in a 10-year callable NCD with a 3-year call protection period, the company, after 3 years, can anytime stop and liquidate your NCD. Companies issue callable NCDs to maintain financial flexibility. The logic can be, if interest rates become lower in the market, the company can call back the high-interest NCDs and reissue new ones at lower rates. This reduces their borrowing costs.

What Are Non-Callable NCDs?

Non-callable NCDs do not give the issuing company any right to stop the debentures before maturity. Once you invest, the company must continue to the full tenure and pay the interest until the maturity date. Your investment remains locked in for the entire period specified at the time of issue. This provides certainty about the investment duration and the total returns you will receive.

Difference between Callable vs Non-Callable NCDs

Feature	Callable NCDs	Non-Callable NCDs
Interest rates	Higher interest rates (usually 0.25% to 1% more) to compensate for early redemption risk	Lower compared to callable NCDs since there is no early redemption option
Investment certainty	Lower certainty, as the company can redeem early, changing your investment duration	High certainty, tenure and returns remain fixed until maturity
Reinvestment risk	High. If redeemed early during low-interest periods, you may struggle to reinvest at similar rates	No reinvestment risk, funds stay invested at the agreed rate until maturity
From the company’s perspective	Offers flexibility to reduce debt when market interest rates fall or conditions change	Less flexible, the company must continue paying the agreed rate for the entire tenure

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In a nutshell, callable NCDs usually give higher interest because the company has the right to take back your money early. Non-callable NCDs are more predictable because the company cannot stop them early, so you know exactly how long your money will stay invested and what you will earn. From the company’s point of view, callable NCDs give them more flexibility to reduce their debt when interest rates change.

While investing in NCDs, first find out if it's callable or non-callable. Carefully read the offer document to understand the call provisions. Check when the company can exercise the call option, how much notice they provide and whether there are any fines or charges.

About Author

Pradnya Surana

Sub-Editor

is an engineering and management graduate with 12 years of experience in India’s leading banks. With a natural flair for writing and a passion for all things finance, she reinvented herself as a financial writer. Her work reflects her ability to view the industry from both sides of the table, the financial service provider and the consumer. Experience in fast paced consumer facing roles adds depth, clarity and relevance to her writing.

Understanding NCDs - Callable vs Non-Callable

Understanding the Basics

What Are Callable NCDs?

What Are Non-Callable NCDs?

Difference between Callable vs Non-Callable NCDs

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