Non-convertible debentures
NCDs
Corporate borrowing, with corporate risk
An NCD is a debt instrument issued by a company. It pays interest for a fixed term and cannot be converted into shares — which is what the “non-convertible” refers to.
a stated term and rate
Interest at a stated rate, with payout options that are typically monthly, annual or cumulative at maturity.
a single company's credit
Your outcome depends on one company's ability to pay. This is concentrated credit exposure, not diversified.
at a glance
How this one behaves
A fixed tenure and a fixed rate from one company. The fixed rate is a contractual schedule, not an assurance that it will be paid.
- What you hold
- Debt issued by a single company
- Return
- Interest at a stated rate for a set tenure
- Getting out
- Only via a thin secondary market, if listed at all
- What drives the outcome
- That one company’s credit, and nothing else
how it works
A high coupon is information, not a discount
This is the point we most want understood on this page. When an NCD offers a rate noticeably above what large banks or government securities pay, that gap exists for a reason. The company is paying more because lenders require more to accept its credit risk. The extra yield is compensation for a higher probability of not being repaid — it is priced, not free. An unusually attractive rate is a reason to look harder at the issuer, not a reason to move faster.
Secured versus unsecured is the next distinction. A secured NCD has a charge over specified company assets, which places holders ahead of unsecured creditors if things go wrong. This genuinely improves your position. It does not make repayment certain: the assets may be worth less than expected, enforcement takes time, and recovery proceedings in India can run for years. Unsecured NCDs have no such charge and rank lower still.
Credit ratings are assigned by registered agencies and are the most accessible signal available. They are also opinions that get revised. A downgrade during your holding period can reduce the market value of the NCD and, in the worst cases, precede a payment failure. Ratings are worth reading and worth monitoring — not worth treating as a guarantee.
Liquidity is a practical constraint that surprises people. Many listed NCDs trade very thinly. In principle you can sell on the exchange; in practice, finding a buyer at a fair price for a modest holding can be difficult, and it becomes hardest precisely when sentiment about the issuer has deteriorated. Money that might be needed early is not well suited to this instrument.
The practical implication is about position size. Because the risk is concentrated in one company, the question is not only whether an NCD looks reasonable but how much of a portfolio should depend on any single issuer. Spreading across issuers, and being deliberate about the total share of wealth committed to this category, matters more here than in diversified vehicles.
risk
What can go wrong
Every investment on this site carries risk. These are the ones that matter most for this category.
credit risk is the main risk
Repayment depends on one company. If it cannot pay, interest can be missed and capital can be lost in part or in full.
concentration risk
Exposure sits with a single issuer rather than spread across many. Position size therefore matters more than usual.
liquidity and rating risk
Exchange trading is often thin, and a rating downgrade can cut market value well before any actual default.
faqs
Questions about NCDs
No, and it is important to be direct about this. An NCD has a fixed interest schedule, but that is a contractual promise from one company — not a protection of your capital. If the issuer runs into difficulty, interest can be missed and principal can be lost in part or in full. The fixed rate describes what is owed, not what is certain to arrive.
It means holders have a charge over specified assets and rank ahead of unsecured creditors in a recovery. That is a real advantage, but not protection. The charged assets may realise less than expected, and recovery processes can take years. Security improves your position in a default; it does not prevent one.
No. A high rating reflects an agency's current opinion of strong repayment capacity, which is meaningful but is neither a guarantee nor permanent. Ratings are revised, and a downgrade affects market value. No corporate debt instrument is free of credit risk.
They are different instruments with different protections, and the higher rate on an NCD reflects that. Bank deposits in India carry deposit insurance up to a statutory limit per depositor per bank; NCDs carry no such insurance and depend entirely on the issuing company. Comparing the two on interest rate alone omits the part that matters most.
Risk and important information
NCDs carry credit risk, concentration risk, liquidity risk and interest-rate risk. Repayment of interest and principal depends entirely on the issuing company, which may default, and investors can lose part or all of their capital. A stated coupon is a contractual obligation of the issuer, not an assurance of payment or of capital protection, and a secured issue does not guarantee recovery. NCDs are not covered by deposit insurance. Credit ratings are opinions and are subject to revision. Please read the offer document in full before investing. Nothing on this page is investment advice or a recommendation.
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