NCDs in India: Safer Than Stocks?

Introduction

Stock market giving you anxiety? Tired of your fixed deposits paying less interest than your neighbour’s water purifier EMI?

Then say hello to non-convertible debentures (NCDs)—a middle path between the drama of stocks and the dullness of FDs. These are fixed-income instruments issued by companies that offer higher returns than most bank deposits, without the mood swings of the equity market.

And the best part? Some of them pay you regular income while you sip your morning chai. Others just sit quietly in your demat and grow fat over the years—like a disciplined child.

But are they safe? Are they taxable? And which NCDs in 2025 are worth checking out?

Let’s decode everything, minus the jargon. Promise.

What Are Non-Convertible Debentures?

Let’s break the fancy name first.

Debenture simply means a loan you give to a company.
Non-convertible means this loan cannot be converted into shares. You’re not becoming a part-owner—you’re just the classy lender who gets paid interest.

So, Non-Convertible Debentures (NCDs) are debt instruments that companies issue to raise money from the public. In return, they promise to pay you a fixed interest for a fixed period. Think of it like lending money to your ambitious friend, but this time, he actually has to pay you back—with interest, and on time (hopefully).

NCDs are listed on stock exchanges, which means you can also sell them before maturity. And unlike FDs, where banks act all controlling with their early withdrawal penalties, NCDs give you more flexibility (in most cases).

Why do companies love NCDs?
Because they get long-term funds without diluting their ownership or sharing profits. And investors love them because they offer higher returns than boring old FDs.

Simple as that.

Types of NCDs: Secured vs Unsecured

Now, not all NCDs are made equal. Some play safe, others play wild.

🛡️ Secured NCDs:

These are the good boys.
The company pledges its assets (like property, receivables, etc.) as security.
So, in case things go south and the company can’t pay, these assets can be sold off to recover your money.

Investor’s comfort level? High.
Returns? Decent, but not sky-high.
Example: Muthoot Finance has issued secured NCDs—safe, solid, and reliable.

🎲 Unsecured NCDs:

These are the daredevils.
There’s no collateral backing them. If the company defaults, there’s no asset to fall back on.

So why would anyone invest in these?
Because they offer higher returns to compensate for the risk. It’s the classic high-risk, high-reward story.

Investor’s comfort level? Lower.
Returns? Juicier.
Example: IIFL’s NCDs come in both secured and unsecured flavors—with the unsecured ones offering rates up to 10.5%.

In short:

Feature	Secured NCDs	Unsecured NCDs
Backed by Assets	✅ Yes	❌ No
Default Protection	High	Low
Return	Moderate	High
Risk	Low	High

NCD vs FD: Who Wins the Fixed-Income Fight?

If you’re wondering whether to park your money in a Fixed Deposit (FD) or go the NCD route, here’s a no-nonsense face-off.

Returns:

NCDs punch harder.
They offer 2–2.5% higher returns compared to bank FDs. That’s like getting an extra plate of biryani every year without spending more.

Feature	NCDs	Fixed Deposits
Issued By	Corporates	Banks & Corporates
Interest Rate	Higher (8–11%)	Lower (5–7%)
Liquidity	Moderate (listed, tradable)	High (easy withdrawal)
Risk	Moderate to High	Low
Safety	Depends on credit rating	High (especially in banks)
Tax on Interest	Taxed as per slab (no TDS)	Taxed + TDS after ₹40,000
Tenure	1–10 years or more	7 days to 10 years
Exit Option	Yes (put/call/trade)	Usually premature penalty

Tax Angle:

• NCDs: No TDS, but taxed based on your slab if held till maturity.
• FDs: TDS applies if annual interest exceeds ₹40,000 (₹50,000 for senior citizens), and taxed as per your slab.

The Catch:

• FDs are safer, especially when held with top banks.
• NCDs carry a bit more risk, but can make your money work harder if you choose high-rated ones (AAA or AA).

Verdict?
If safety is your thing—FDs win.
But if you’re chasing higher returns and can handle a bit of risk—NCDs are your jam.

Why Credit Rating Can Make or Break Your NCD Investment

Imagine lending money to a friend. Wouldn’t you check if they actually return cash on time—or if they vanish like your gym motivation?

That’s exactly why credit ratings matter in NCDs.

What Is a Credit Rating?

It’s a score given by rating agencies like CRISIL, ICRA, or CARE, based on a company’s ability to repay debt. Think of it like a financial report card.

Rating	What It Means	Risk Level
AAA	Excellent repayment ability	Very Low Risk
AA / A	Good, but not perfect	Low Risk
BBB	Still okay, but some red flags	Moderate Risk
BB & Below	Risky territory	High Risk
D	Default	Run!

Real Talk from SEBI:

No AAA-rated NCD issuer has ever defaulted (yet). Lower the rating, higher the risk. So when you see “BBB-” on a company’s NCD, you’re playing in riskier waters.

💡 How to Use This:

Before buying an NCD, always:

• Check the rating — at least A or higher is preferred for safer bets.
• Understand the rating trend — downgrades are a red flag.

You wouldn’t buy expired milk just because it’s cheaper. Similarly, don’t fall for high interest if the credit rating stinks.

Secured vs Unsecured NCDs: Choose Your Risk Wisely

Let’s say you’re lending money to two friends. One gives you their gold chain as collateral, the other just gives you a thumbs-up and disappears for Goa. That’s the difference between secured and unsecured NCDs.

🔐 Secured NCDs – Safety with Slightly Lower Returns

These NCDs are backed by company assets—like buildings, machinery, or gold reserves. If the company fails to pay, these assets can be sold to repay investors.

Example:
Muthoot Finance issued secured NCDs in 2019 to raise ₹100 crore. Since they’re secured, investors had legal backing.

✅ Safer
✅ Lower risk of losing money
❌ Slightly lower interest

🔓 Unsecured NCDs – Higher Returns, Higher Drama

These aren’t backed by any asset. If the company defaults, well… you’re in for some heartbreak.

Example:
India Infoline Finance offered both secured and unsecured NCDs. The unsecured ones paid up to 10.5% — higher than the secured options — but came with more risk.

✅ Higher returns
❌ No safety net
❌ Full faith in the company’s honesty (gulp)

Which One’s Right for You?

Investor Type	Best Fit
Conservative Investor	Secured NCDs
Risk Taker	Unsecured NCDs
Goal-Oriented	Secured + Cumulative payout NCDs

Don’t just chase returns. Know what you’re signing up for.

How Taxes Affect NCD Returns: Uncle Sam Always Gets a Cut

Ah, taxes — the invisible hand that grabs your profits. Unlike FDs that deduct TDS upfront, NCDs are a bit sneakier. They feel tax-free… until the I-T department shows up.

No TDS, But You’re Not Off the Hook

Here’s the thing — NCDs don’t deduct TDS (Tax Deducted at Source), even if you earn ₹50,000 or ₹5 lakh in interest. But that doesn’t mean you escape taxes. The taxman still wants his share — just that you need to report it yourself.

Tax When You Hold Till Maturity

Hold the NCD till the end of its term?
The interest gets added to your income and taxed as per your slab.

• In 30% slab? Say goodbye to nearly a third of your earnings.
• In 5% slab? Congrats, you’re keeping most of it.

Tax When You Sell Early (Before Maturity)

Sold your NCD before maturity on stock exchanges? Then:

• Held for less than 12 months?
  You pay Short Term Capital Gains (STCG) tax as per your slab.
• Held for more than 12 months?
  You pay Long Term Capital Gains (LTCG):
  • 10% without indexation
  • 20% with indexation (choose wisely)

Smart Investor Tip

If you’re in a high tax bracket, your “9% NCD” might end up giving you post-tax returns of just 6.5–7%. In that case, tax-free bonds or debt mutual funds with indexation benefit might make more sense.

NCD Exit Options: Can You Get Out Midway?

So you bought an NCD thinking you’d hold it till maturity — but now you need the money. Or maybe interest rates have gone up and your 9% NCD doesn’t look so sexy anymore.

Don’t worry — NCDs aren’t jail time. There are exit options, but they come with conditions.

1. Sell on the Stock Exchange

Most NCDs are listed on NSE or BSE. That means you can sell them in the secondary market — just like shares.

Pros:

• You can exit before maturity.
• No penalties like FDs.

Cons:

• Liquidity is low. You might not find buyers.
• You might have to sell at a discount if interest rates have risen.

2. Call Option (Company Redeems Early)

Some NCDs come with a call option, which gives the company the right to buy back the debenture before maturity.

Why would they do that?

• If interest rates fall, the company might want to refinance at a lower cost.

What it means for you:

• You get your money early.
• But you miss out on future interest payments.

3. Put Option (You Exit Early)

This one’s for you. Some NCDs have a put option, which allows investors to sell back the NCD to the company at a fixed date.

• Great if you need early liquidity.
• But not all NCDs offer this.

Exit Tip:

Before investing, check if the NCD is listed, and whether it has call/put options. These small details can be life-saving when you suddenly need cash.

Public NCDs in 2025: Which Ones Are Worth a Look?

Now that you know how NCDs work, let’s look at what’s hot in the market. In 2025, several companies have come up with public NCD issues — and some of them are turning heads with double-digit interest rates.

But remember — higher return = higher risk. So let’s break it down smartly.

Top Picks with Safer Ratings

Muthoot Fincorp Limited

• Opened: Apr 29, 2025
• Closing: May 13, 2025
• Rating: CRISIL AA-/Stable
• Base Issue: ₹100 Cr | Shelf: ₹2,000 Cr

Why consider it?

• It’s from a well-known NBFC.
• Strong rating = lower default risk.
• Ideal for medium-risk takers looking for balance.

IIFL Finance Limited

• Opened: Apr 7, 2025
• Closed: Apr 11, 2025
• Rating: CRISIL AA/Stable & ICRA AA (Stable)
• Base Issue: ₹100 Cr | Shelf: ₹2,500 Cr

Why it stood out:

• Double AA rating means excellent repayment track record.
• One of the most credible NBFCs in the list.
• Already closed, but watch out for similar issues later this year.

Moderate Risk, Moderate Return

Muthoottu Mini Financiers Limited

• Opened: Apr 23, 2025 | Closing: May 7, 2025
• Rating: ICRA A (Stable)
• Issue Size: ₹100 Cr

A smaller NBFC with a decent A rating. Not AAA, but not junk either. Good for investors wanting a little extra return with reasonable risk.

High Returns, High Risk (Proceed with Caution)

Chemmanur Credits And Investments Ltd

• Opening: Jun 3, 2025 | Closing: Jun 16, 2025
• Rating: IND BBB-/Stable
• Issue Size: ₹50 Cr

BBB- is just one step above junk rating. Sure, you might get a 10-11% coupon. But if the company defaults, that 11% becomes 0%. These are strictly for thrill-seekers (or deep researchers).

Pro Tip:

Always compare the credit rating, issue size, and the company’s business model before investing. For example, gold loan NBFCs like Muthoot and IIFL have historically shown better asset quality and repayment records.

Conclusion

In 2025, public Non-Convertible Debentures (NCDs) present a mixed bag of opportunities for investors. On one hand, you have well-rated NBFCs like Muthoot Fincorp and IIFL Finance offering steady returns with lower risk, making them suitable for conservative to moderate investors. On the other hand, smaller or lower-rated companies like Chemmanur Credits offer tempting high-interest rates but come with significantly higher default risk.

The key takeaway is simple: don’t chase high returns blindly. Higher interest rates mean higher risk, and the safety of your capital should always come first. Assess the credit rating, the company’s track record, and the issue size before deciding. For most investors, choosing NCDs with good ratings (AA or above) and reputable issuers is the smart path to generate stable income without unnecessary risk.

NCDs can be a useful tool to diversify your portfolio with fixed-income options, but like any investment, it pays to do your research and match your choices with your risk tolerance and financial goals.

For easy access to the best NCDs and seamless investment experience, you can explore and invest through Angel One’s platform — simple, reliable, and investor-friendly.

FAQs on Non-Convertible Debentures (NCDs)

Q1: What are Non-Convertible Debentures?
Non-Convertible Debentures (NCDs) are debt instruments companies issue to raise funds. They pay fixed interest but cannot be converted into shares.

Q2: How do NCDs differ from Convertible Debentures?
Unlike Convertible Debentures, NCDs cannot be converted into equity shares. They remain debt until maturity.

Q3: Who can invest in NCDs?
Anyone looking for fixed income can invest, but it suits investors comfortable with moderate risk based on the issuer’s credit rating.

Q4: What affects the risk level of NCDs?
Credit ratings by agencies like CRISIL and ICRA indicate the issuer’s repayment ability. Higher ratings mean lower risk.

Q5: Can NCDs be traded before maturity?
Yes, many NCDs are listed on stock exchanges and can be traded, though liquidity varies.

Q6: What is the usual tenure of NCDs?
Tenure ranges from 1 to 10 years, depending on the issue.

Q7: Are interest earnings from NCDs taxable?
Yes, interest income is taxable as per your income tax slab.

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