What Are NCD's? Non-Convertible Debentures! (#53)

What Do NCD's Stands For? & What Does It Means?

NCD's stands for Non-Convertible Debentures. As the name suggests these Debentures can also be converted into others assets like Stocks & Bonds!

How Do NCD's Works?

I find the way NCD's work is quite similar to the way Bonds really do! That's just my opinion you don't really have to think about it alot!

Anyways so;
What basically happens is that when a Company/a Business (a new Business, usually) needs some funds for Business Expansion.... they go to people, right? It's similar to what happens in Share Market!
So basically Businesses make NCD's.... which are nothing but documents assuring your contribution you made in/to that Business!
The NCD's interest rates varies & also the time when it is supposed to be matured!
You usually get paid the interest by the Company.... Every Month or Annually (that is Every Year).... Or in another scenario you might be paid the Interest with the amount you invested in the Business all together on the date of maturity!
Tax is deducted if the NCD's matures within 1 year!
After the maturity the amount is transferred to your given/provided Bank Account!

Types Of NCD's!

There are majorly 2 types of NCD's.... Secured NCD's & Unsecured NCD's. Now, lets have a look into the details & differences of each, one by one!

Secured NCD's

Secured NCD's; as the name itself suggests are the SECURED NCD's. Which means thatthatre are very less chances of a Company defaulting its payment here!

Unsecured NCD's

Unsecured NCD's are the exact opposite of the Secured one's because in this case the Company amy be a Defaulter.

Note-- Here, Defaulter means that the Company may not pay you interest & sometimes it may not return you your investment amount you've paid!

Differences Between Secured NCD's & Unsecured NCD's!

Unsecured NCD's may have more interest rates but more risk. While, Secured NCD's may have lower interest rates but will carry lower risk!

I find it kinda similar to how Big & Small Companies in Share Market works!
As in Share Market; Big Companies are safer to invest in but pay low returns.
While, Small Companies are riskier to invest it but can pay high returns.

Again; I find NCD's kinda similar to how Bonds Works!

Anyways, So that's it for today!
Thanks For Reading!

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