Current Fixed Income Offers: NCDs, FDs & REIT IPOs

An NCD (Non-Convertible Debenture) is a debt security a company issues to borrow money. It pays interest at a stated rate and repays the face value on maturity, and it cannot be converted into shares. NCDs are held in a demat account and most are listed on BSE or NSE, so they can be sold on the exchange before maturity, subject to buyers being available. A fixed deposit is a deposit with a bank, NBFC or company. It is not traded, and closing it early usually carries a penalty. Bank FDs are covered by DICGC deposit insurance up to Rs 5 lakh per depositor per bank; NCDs and company FDs have no such cover.

No NCD is risk-free. The credit rating (for example AAA, AA or A) is a SEBI-registered rating agency's opinion of how likely the issuer is to pay interest and principal on time. A higher rating means a lower assessed risk of default, not that there is no risk, and ratings can be downgraded during the life of the NCD. Secured NCDs are backed by assets of the issuer; unsecured NCDs are not. Each NCD page on this site shows its ratings and SEBI Credit Risk-o-Meter.

NCD interest is added to your income and taxed at your income tax slab rate. TDS may be deducted on interest above the threshold set in the Income Tax Act. If you sell a listed NCD on the exchange, the gain is taxed as a long-term capital gain at 12.5% (without indexation) if held for more than 12 months, and at your slab rate if held for 12 months or less. Gains on unlisted NCDs are taxed at your slab rate. Tax rules change, so check the current position with your tax adviser.

You can apply while the issue is open, through ASBA in your net banking or through a broker or app using UPI (UPI applications are allowed up to Rs 5 lakh). You need a demat account and PAN, and you choose the series (tenure and interest payout) and the amount. Many NCD issues allot on a first-come, first-served basis by date of application, so an issue can close before its scheduled date if it is fully subscribed. Allotted NCDs are credited to your demat account and then list on the exchange.

A fixed deposit pays a fixed interest rate for a fixed term, and its value does not move with the market. An NCD also pays a fixed coupon, but it carries the credit risk of the issuing company, and the price of a listed NCD can move before maturity. A REIT or InvIT is a listed trust that distributes most of the cash from its rent-paying or infrastructure assets. The distributions are not fixed and can change, its unit price moves with the market, and it has no maturity date. Which one fits depends on your need for fixed payouts, your risk comfort and how long you can stay invested.