NCD Issue: Returns of 9%-11% to no TDS applicable, here are top 5 benefits of investment in Non Convertible Debentures
NCDs provide fixed returns to investors, hence, even during a volatile market, they can remain assured of guaranteed returns.
NCD or Non Convertible Debenture issues are on the rise as corporates are issuing these to attract investments from an individual. However, before going for the investment in NCD issues of various corporates, one should know that it's money in the form of debt that a company raises for meeting its financial requirements. Like IPO, a company issues its NCDs offering regular interest as per your desired time interval.
Speaking on the NCD issues flooding the investment markets, Rahul Jain, Head, Personal Wealth Advisory at Edelweiss said, "Today, every investor is evolving with his choices; not only is he looking to invest beyond the normal realm of traditional instruments, but also diversifies his investment platter. There are several new NCD issues, and as investors, we are certainly spoilt for choices. But before checking out the upcoming NCDs, let us first understand that why do you need them in your portfolio."
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Elaborating upon how does an NCD help an investor attain an ideal asset allocation mix Jain said, "Ask any financial advisor – and he will always recommend you to invest in some credit instrument to hedge the risk of the equities. The proportion of the equities vs. the credit mix in your portfolio may vary as per your risk appetite, but a credit instrument will bring liquidity to your portfolio. In such a scenario, the most IDEAL instrument to add to your portfolio will be an NCD investment."
Asked about the top five benefits that an investor can get after investing in the Non Convertible Debentures of NCDs, Rahul Jain listed out the following:
1] Fixed Return: NCDs provide you with fixed returns; hence, even during a volatile market, an investor can remain assured of guaranteed returns;
2] Rate of Return: The rate of return from an NCD is generally higher than other instruments. The current rate of return is between 9%-11% per annum;
3] Safety: Several rating agencies provide ratings for NCDs. A lower rating signifies a higher risk & vice versa – therefore NCDs with higher ratings are safer;
4] Liquidity: Most of the NCDs come with a clause which allows a premature exit for the face value on the stipulated date; and
5] No TDS Applicable: Interest received from NCDs is not subject to TDS u/s 193 of the Income Tax Act.
So, these five benefits would guide an investor who is looking for an alternative avenue for revenue.