Non-Convertible Debentures Investors
Investing in Non-Convertible Debentures (NCDs) opens the door for various types of investors to participate in the financial growth of companies. By subscribing to an NCD issue, investors essentially lend money to a company in exchange for a fixed interest rate, thus becoming creditors rather than shareholders. Similar to an equity IPO, NCD IPOs invite both institutional and non-institutional investors, including high-net-worth individuals and retail investors. These investors are categorized into four distinct groups: Category I, II, III, and IV.
Category I: Institutional Investors (QIB)
Institutional investors, often known as Qualified Institutional Buyers (QIBs), fall under Category I for NCD investments. This group includes:
- Public Financial Institutions, Scheduled Commercial Banks, and Indian Multilateral and Bilateral Development Finance Institutions.
- Provident and Pension Funds with a minimum capital of ₹25 crores each.
- Superannuation Funds and Gratuity Funds.
- SEBI-registered Venture Capital Funds and Alternative Investment Funds.
- Insurance companies registered with IRDA (Insurance Regulatory and Development Authority of India).
- State Industrial Development Corporations.
- The National Investment Fund, established by the Government of India and noted in the Government Gazette.
- Insurance funds managed by Indian defense services or the Department of Posts.
- SEBI-registered Mutual Funds.
- Non-banking financial companies registered with the Reserve Bank of India (RBI) having net assets exceeding ₹500 crores as per the latest audited financial statements.
Category II: Non-Institutional Investors (NII)
Category II comprises Non-Institutional Investors eligible for NCDs, including:
- Companies as defined by Section 2(20) of the Companies Act, 2013.
- Body corporates and societies registered under Indian law.
- Cooperative banks and regional rural banks.
- Educational institutions and associations formed or registered under statutory provisions.
- Trusts, including public/private charitable/religious trusts.
- Associations of persons.
- Scientific and/or industrial research institutions.
- Public sector entities and companies registered under Indian law.
- Foundations, including public/private charitable/religious foundations, and scientific and/or industrial research institutions.
- Partnership firms in the name of partners and limited liability partnerships.
- Any other incorporated or unincorporated body of persons.
Category III: High Net Worth Individual Investors (HNI)
High Net Worth Individuals (HNIs) are classified under Category III. This category includes resident Indian individuals or Hindu Undivided Families who apply through Karta for amounts exceeding ₹10 lakhs.
Category IV: Retail Individual Investors (RII)
Retail Individual Investors make up Category IV. This group consists of Resident Indian Individuals and Hindu Undivided Families who apply through the Karta for amounts up to and including ₹10 lakhs, covering all series of NCDs.
Investors Who Cannot Apply for NCDs
Certain individuals and entities are restricted from applying for NCDs, such as:
- Minors without a guardian (although a guardian can apply on their behalf, the guardian's name must be on the application).
- Foreign nationals, including NRIs, who are based in, domiciled in, or residents/citizens of the USA, or subject to U.S. taxation laws.
- Persons resident outside India and other foreign entities.
- Foreign Institutional Investors and Foreign Portfolio Investors.
- Non-Resident Indians and Qualified Foreign Investors.
- Overseas Corporate Bodies and Foreign Venture Capital Funds.
- Individuals not eligible to contract due to legal/regulatory provisions.
While the RBI does permit NRIs and foreign investors to invest in NCDs, stringent FEMA regulations often lead to these investors being on the ineligible list in NCD offer documents.
Before investing in an NCD, investors should:
- Thoroughly review the offering document, considering risks, credit rating, and the financial health of the company.
- Understand their financial goals, risk tolerance, and investment horizon.
- Contact the registrar for any issues, as the offer document includes contact information for investor complaints and registrar details.