Debentures (NCD)

What an NCD actually is

When a company needs to borrow long-term money without going to a bank, it can issue debentures — IOUs sold to investors. A non-convertible debenture is the plain-vanilla version: it stays debt for its whole life. Unlike a *convertible* debenture, it can never be swapped for equity. You lend the company money, collect interest, and get your principal back at maturity.

In India, public NCD issues are regulated by SEBI, listed on the NSE or BSE, and held in your demat account. NBFCs are the most active issuers — names like Muthoot Finance, and large issues from groups such as Adani Enterprises, regularly tap retail savers, often offering coupons in the 8-9% range in recent years.

Secured versus unsecured

The single most important label on an NCD is whether it is secured. A secured NCD is backed by the issuer's assets — if the company defaults, those assets can be sold to repay you, which makes it relatively safer. An unsecured NCD has no such collateral; repayment rests entirely on the issuer's cash flows and creditworthiness, so it typically carries a higher coupon to compensate.

Always read the credit rating (AAA down to lower grades) before chasing yield. A tempting rate from a weakly rated NBFC is the market warning you about default risk.

Returns and tax

NCDs come in cumulative (interest compounds and pays at maturity) or regular-payout flavours. The catch for Indian investors is tax: interest is added to your income and taxed at your slab rate, with TDS typically deducted on payouts. If you sell a listed NCD on the exchange after holding it, capital-gains rules apply instead.

For savers seeking a fixed, predictable income stream above a bank FD — and willing to study the issuer's balance sheet — a high-rated, secured NCD can be a sensible piece of a debt portfolio. The yield is never free; it is the price of the risk you accept.