The fixed-income investment realm offers investors a variety of options, including bonds, debt mutual funds, and now, Non-Convertible Debenture (NCD) IPOs. Investors must understand NCD IPOs and how they differ from equity IPOs.
Non-Convertible Debenture (NCD) IPOs
NCDs are corporate debt instruments similar to bonds, but unlike bonds, they cannot be converted into equity shares. They offer investors a safer and more stable investment opportunity, along with a consistent income flow.
Why do investors find NCDs appealing?
According to Abhijit Roy, CEO, GoldenPi, investors find NCDs appealing due to their high yields, which often outpace bank FD rates by a considerable margin. With many NCDs boasting comfortable ratings, they offer a reliable investment opportunity.
“The minimum investment quantum for NCD IPOs is ₹10,000 making it a strong retail product. This serves as a good channel for Institutions to raise debt capital from the retail segment. Typically, NCD IPOs come with a maturity period of 5 years, and the interest rates vary depending on the credit rating. For instance, an AAA-rated NCD IPO might offer a competitive interest rate ranging between 9% and 10% while lower-rated NCDs with A ratings will offer around 12%,” said Abhijit Roy.
NCDs provide a higher yield in comparison to other instruments like mutual funds, PPFs, and others
“NCDs consistently offer higher yields compared to Government securities (G-secs), Public Provident Funds (PPF), and bank Fixed Deposits (FDs), making them an attractive choice for investors seeking dependable returns. This short-term investment avenue with promising returns appeals to investors aiming for quick gains. Moreover, the growing retail interest in NCD investments signals an emerging trend in broadening business prospects for companies. Therefore, the current scenario presents an opportune time for investors to explore NCD IPOs as a strategy to diversify portfolios and capitalize on attractive yields amidst evolving market conditions,” stated Abhijit Roy, CEO of GoldenPi.
The primary distinction between the two is that NCDs are debt instruments, whereas equity shares signify ownership stakes in the company.
NCD issue process is similar to the IPO process
1) Investors apply for NCD shares through a broker.
2) Based on the subscription, they receive the number of NCD shares.
3) The NCD’s are credited to the demat account and the money gets deducted from the trading/bank account.
4) The minimum ticket sizes to invest in such IPO’s are usually Rs. 10000.
5) The majority of NCDs are listed on exchanges and traded similarly to equity shares.
6) Several of them are traded with respectable liquidity and at prices that are close to fair.
Disclaimer: The views and recommendations made above are those of individual analysts, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
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