Understanding Non-Convertible Debentures (NCDs)

Published on December 24, 2025 | 2 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 periodically (monthly, quarterly or annually).

Why Portfolio Stability Matters

In the realms of investments, conservative investors look for stable returns with little or no volatility. Given the volatility of equity markets, even aggressive investors may, to some extent, seek predictable returns. Having stable and predictable income sources in your portfolio provides that cushion against market downturns. NCDs play a crucial role in achieving this stability whilst offering better returns than traditional fixed deposits.

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Why NCD Helps Build a Stable Portfolio

The main advantage of investing in NCDs is the assurance of fixed returns. Also, NCDs have a fixed maturity period and a fixed timeline to pay interest. So, when you invest in NCDs, you know exactly how much interest you will receive and when. Interest rates have been in the range 7% to 11% per annum and it depends on the company's credit rating and market conditions. The only risk associated with NCD is the issuing company's default risk. NCD returns remain constant throughout the investment period. This predictable interest flow creates a steady income stream and allows you to plan your finances better.

Better Returns Than Traditional Options

Compared to bank fixed deposits (FDs) or savings accounts, NCDs have been offering higher interest rates. While a fixed deposit today might provide 6-7% annual returns, NCDs from reputable companies can offer 8-10% or more. The higher returns in NCDs give investors a middle ground between the safety of bank deposits and the volatility of equity investments.

Credit Rating and Safety

NCDs are rated by reputed credit rating agencies like CRISIL, ICRA and CARE. These agencies rate on the basis of the issuing company's ability to repay. Higher-rated NCDs (AAA or AA) are considered good and are considered to have lower risk and greater stability. Investing in highly rated NCDs ensures that your principal is relatively safe and that you earn a predictable return. This credit rating system helps investors understand the level of risk associated with respective NCDs and make decisions accordingly

Lock-in and Liquidity of NCDs

NCDs come with a fixed tenure, and you cannot liquidate once you have invested. The only option for liquidating them is by trading on stock exchanges. Many NCDs are listed on stock exchanges, providing liquidity if you need to exit before maturity. While holding till maturity is advisable for maximum returns, the option to sell in the secondary market adds flexibility to your investment.

NCDs, by offering fixed returns and regular income, help in building stable portfolios. They generally offer a slightly better rate of return than bank FDs and provide an option of liquidity by trading on the stock exchange.

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.