Non-convertible debentures (NCD) compared with bank fixed deposits and FMPs have caught the eye of investors as a lucrative investment option. Here are a few things that you need to consider before planning your investment in NCDs:

How safe is your capital?

You must remember that the major reason for you investing in debt instruments is safety. There are many private issuers who can default on the repayment of the principal amount that you have invested. This is precisely where credit rating of the NCDs becomes very important. Credit rating enables you to take your decision of investing in the NCDs confidently. A higher credit rating from top agencies such as CRISIL fetches you higher returns with better security compared with NCDs with a lower credit rating. Thus, look out for the credit rating of the NCDs before parking your money.

How strong are the company’s assets?

When you invest in NCDs, you lend money to the company. Therefore, as a lender, you have the first right on the company’s assets during the time of its liquidation. However, if the company’s assets are sufficient enough to take care of your amount invested, the whole investment gets jeopardised. Therefore, before investing in a company’s NCDs, ensure that you analyse the company’s financials carefully. Check the company’s book value.

How liquid is the investment?

Liquidity is a major factor that you need to consider before parking your funds in NCDs. Remember that there is no obligation to hold the debentures until maturity date because it can be traded in the secondary debt market. Therefore, it becomes imperative for you to check whether NCDs of the company that you have chosen are traded regularly on the BSE and NSE. There are many companies whose debentures are not traded on the stock exchanges for days together. That’s not the liquidity option that you are looking at when you are investing in NCDs.
The best way to investment in NCDs is through professional experts. They provide you with research services, company fundamentals, and easy-to-use trading platforms, helping you with well-informed investment.

Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.