Question 1

Which is a better investment choice: NCDs or FDs?

Accepted Answer

Fixed Deposits (FDs) usually have a set commitment period. If you withdraw your money early, you might face penalties or receive a lower interest rate. Non-Convertible Debentures (NCDs) often provide higher interest rates, which can be either fixed or floating. FDs, on the other hand, offer a fixed interest rate for the entire investment term.

### Difference between NCD and FD

| Aspect | Fixed Deposits (FDs) | Non-Convertible Debentures (NCDs) |
| --- | --- | --- |
| Commitment Period | Short to medium term. Typically have a fixed commitment period (e.g., 1 year, 3 years, 5 years). | Medium to long term. Have a specified maturity period, e.g., 1 year to 10 years. |
| Early Withdrawal | Early withdrawal may be subject to penalties or lower interest rates. | Can be traded before maturity if listed on a stock exchange. No penalty; trading happens at the available market price. |
| Liquidity | More liquid than NCDs. Can be withdrawn anytime, subject to penalties. | Less liquid than FDs. Though listed NCDs can be traded, their liquidity is generally lower. |
| Interest Rates | Fixed interest rates for the entire term. | Offer higher interest rates, which can be fixed or floating, depending on the terms. |
| Regulatory Oversight | Regulated by the Reserve Bank of India (RBI) and governed by banking regulations. | Regulated by the Securities and Exchange Board of India (SEBI) and governed by securities regulations. |

Question 2

Are debt mutual funds a better option than fixed deposits?

Accepted Answer

### Comparison between Debt Mutual Funds and Fixed Deposits

| Aspect | Debt Mutual Fund | Fixed Deposit |
| --- | --- | --- |
| Return Potential | Generally offers higher potential returns compared to fixed deposits, but returns are not guaranteed and vary based on market conditions. | Offers fixed and guaranteed returns over the investment period. |
| Risk | They are subject to market risk and interest rate fluctuations, though generally considered less risky than equity mutual funds. | Considered low risk as the principal amount and returns are guaranteed. |
| Liquidity | Offers higher liquidity as you can redeem your investment partially or fully at any time. | Offers liquidity subject to penalties for early withdrawal before maturity. |
| Taxation | Taxed as per capital gains tax rules, with different tax treatments based on the holding period (short-term or long-term). | Interest earned is taxable as per income tax rules. |
| Diversification | Provides diversification by investing in a portfolio of debt securities across various issuers and maturities. | Offers no diversification as it involves investing a lump sum amount with a single institution. |

Question 3

What's the difference between an NCD and a bond?

Accepted Answer

Here are the main differences between Non-Convertible Debentures (NCDs) and bonds:

• NCDs cannot be converted into company shares, whereas bonds can be either convertible (into shares) or non-convertible.

• NCDs are typically issued by corporations or financial institutions. Bonds, however, can be issued by corporations, governments, or municipalities.

• In India, the Securities and Exchange Board of India (SEBI) regulates the issuance of NCDs. Bonds are regulated by relevant authorities like SEBI or the Reserve Bank of India (RBI).

• Bonds are generally considered less risky than NCDs because they often offer more security.

Question 4

What's the difference between an IPO and an NCD?

Accepted Answer

### Differences between IPO and NCD

| Aspect | IPO | NCD |
| --- | --- | --- |
| Type of Security | In an IPO, shares are offered to investors for the first time. | In an NCD, debentures are offered to investors. |
| Investment Duration | Shares can be held for a long term or a short period. IPO shares can be sold on listing itself. | Medium to long-term investment. |
| Risk | Risky, as it depends on the market situation. No fixed returns. | Low risk, as NCDs are generally secured and are fixed-income instruments. |
| Maturity | Does not involve any maturity period. | Has a maturity period determined by the issuer. |
| Interest Payment | The issuer does not make any interest payments; investors earn/make profit by selling the shares at a better price. | The issuer pays interest to investors. |
| Ownership | Ownership of shares is transferred to the investor. | Ownership or shareholding is not transferred. |

IPO	NCD
Full Form	Initial Public Offerings (equity shares)
Definition	A company offers its shares to the public for the first time in an IPO through the primary stock market.
Ownership	Shareholders own a part of the company through their shares.
Investment Tenor	No maturity; shares can be sold anytime post-listing.
Interest Rate	Not applicable in IPOs.
Tax Implications	Profits from IPO shares are subject to capital gains tax.

NCD	FD
Full Form	Non-Convertible Debentures
Investment Tenor	Long-term, ranging from 1 to 10 years
Interest Rate	Higher than FDs
Tax Implications	Interest taxed as per income slab
Trading	Listed NCDs can be traded
Premature Exit	Possible through selling listed NCDs
Liquidity	Less liquid; secondary market not very active
Minimum Investment	Typically Rs. 10,000
Safety	Rated by credit agencies

NCD	Corporate FD
Issuer	Public or private companies
Credit Rating	Mandatory
Risk	Generally lower due to ratings and security
Liquidity	Tradable; more liquid
Options	May include call/put options
Early Withdrawal	Possible through selling
Regulation	SEBI for listed NCDs
Safety	Secured NCDs offer more safety

NCD	Debt Mutual Fund
Meaning	Debt securities issued by companies for fixed interest
Diversification	Exposes investor to issuer's credit risk
Liquidity	Less liquid than mutual funds
Risk	Issuer-specific credit risk
Management	Investor conducts own analysis
Taxation	Interest taxable as per slab
Accessibility	Not universally available online

NCDs	Mutual Funds
Structure	Fixed-income debt instruments
Risk	Lower risk compared to stocks
Returns	Fixed interest rates, higher than FDs
Liquidity	Fixed tenor, less liquid
Taxation	Interest taxed as per slab

Comparing NCDs with Other Debt Instruments

NCD vs IPO (NCD vs Equity)

NCD vs Equity IPO

NCD vs Fixed Deposit (FD)

NCD vs Bank FD

NCD vs Corporate FD

NCD vs Corporate FD

NCD vs Debt Mutual Fund

NCD vs Debt Mutual Fund

NCD vs Mutual Funds

NCD vs Mutual Fund

Secured vs Unsecured NCDs

Secured vs Unsecured NCDs

NCD vs Debentures

NCD vs Bonds

NCD vs Bonds

Frequently Asked Questions

Secured NCD	Unsecured NCD
Meaning	Supported by company assets, safer
Interest Rate	Lower than unsecured
Risk	Lower risk, more reliable

NCDs	Bonds
Issuing Body	Public/private companies
Investment Type	Secured or unsecured
Conversion Possibility	Non-convertible
Tenure	Typically shorter, 3-20 years
Risk	More risk than bonds