Secured NCD:

• These are backed by company assets. In case of default, company assets can be liquidated to repay investors.
• Less risky than unsecured NCDs

Unsecured NCD:

• These are not backed by company assets. It offers higher returns than secured NCDs
• Riskier than secured NCDs

‘Ratings: Rating agencies use simple alphanumeric symbols to convey credit ratings. For example, rating agencies assign credit ratings to debt obligations on three basic scales: the long‐term scale, the short‐ term scale, and the fixed deposit scale. AAA is the highest Credit rating by indicating highest safety. Higher rating indicates timely servicing of debt obligations by the issuer and lower amount of credit risk.

Secured or Unsecured NCDs: Secured NCDs are secured against an assets, unlike unsecured NCDs. If the bonds are secured, in the event of winding up of the company, it would sell off the assets against which the bonds were secured and repay the investor.

Applications may be made in single or joint names (not exceeding three). In the case of joint application, all payments will be made out in favour of the first Applicant. All communications will be addressed to the first named Applicant whose name appears in the Application Form and at the address mentioned therein. If the depository account is held in joint names, the Application Form should contain the name and PAN of the person whose name appears first in the depository account and signature of only this person would be required in the Application Form. This Applicant would be deemed to have signed on behalf of joint holders and would be required to give confirmation to this effect in the Application Form.

NCDs cannot be withdrawn before maturity. Since NCDs are listed on the stock market they can be sold in the secondary market.

The maturity period for an NCD depends upon issuance of the debenture e.g. 3 years, 5 years, 10 years etc.

The maturity of NCD can’t be extended beyond issuance of the debenture. This gives you flexibility to choose a fixed income between short and long tenures based on your investment goals.

Taxation on NCD
As per section 193 of the Income Tax Act, 1961, there is no tax deduction at source (TDS) from any securities issued by a company, in a dematerialized form and listed on a recognized stock exchange in India.

Interest on NCD is taxed under head ‘other sources’ at applicable slab rates, paid periodically or cumulatively. Interest is not subject to tax deduction at source if NCDs are held in dematerialized form and are listed on a stock exchange. Profit on sale/ redemption of NCDs has to be offered to tax as ‘Capital Gains’

For individual investors, if the NCDs are sold before a year, the profits will be added to the income of the investor and he will have to pay taxes at the same rate as per the income tax slab under long term or short term capital gain.

As a genre NCDs and Bonds are same type of investment.

Once the primary issue is closed and allotment given to the investors. The NCDs get listed in exchange then it stared trading in secondary market based on liquidity. So, you can either choose to subscribe when a company announces NCD or buy later from secondary market when it is trading.

Definition: Coupon rate is the rate of interest paid by bond issuers on the bond’s face value. It is the periodic rate of interest paid by bond issuers to its purchasers. The coupon rate is calculated on the bond’s face value (or par value), not on the issue price or market value.

NCD Public Issue (NCD IPO) is the process by which a corporate raises the NCD funds through the public. The process is similar to equity initial public offer (IPO) of private limited companies. One major difference in Equity IPO and NCD public issue is the bidding of NCD stops as soon as it is fully subscribed

However, when you hold NCDs till maturity, the issuer pays back the capital along with interest (in case cumulative).

All Non-Convertible Debentures (NCDs) issued through Initial Public Offer gets listed on the Capital Market segment of the Exchange. Every security in the trading system is given a symbol with series representative of the security (ISIN).

NCD is neither a share nor fixed deposit. It is similar to fixed deposit in the sense that, the return and tenure is fixed.

Category I (Institutional Category)

• Public Financial Institutions, Statutory Corporations, Commercial Banks, Co‐operative Banks and Regional Rural Banks which are authorized to invest in NCDs.
• Provident Funds, Pension Funds, Superannuation Funds and Gratuity Fund, which are authorized to invest in NCDs.
• Venture Capital Funds and/or Alternative Investment Funds registered with SEBI.
• Insurance Companies registered with IRDA.
• National Investment Funds.
• Mutual Funds.

Category II (Non Institutional Category)

• Companies; bodies corporate and societies registered under applicable laws in India and authorized to invest in the NCDs.
• Public/Private Charitable/Religious trusts which are authorized to invest in NCDs.
• Scientific and /or industrial research organizations; which are authorized to invest in the NCDs.
• Partnership firms in the name of partners; and
• Limited Liability Partnership formed and registered under the provisions of the LLP Act, 2008 (No.6 of 2009).

Category III (Individual Category)

• Resident Indian Individuals.
• Hindu Undivided Families through the Karta

The following categories of persons, and entities, shall not be eligible to participate in the Issue and any Applications from such persons and entities are liable to be rejected:

(a)Minors without a guardian *;

(b)Foreign nationals, Non‐Resident Indians (NRI) inter‐alia including any NRIs who are (i) based in the USA, and/or, (ii) domiciled in the USA, and/or, (iii) residents/citizens of the USA, and/or, (iv) subject to any taxation laws of the USA;

(c)Persons resident outside;

(d)Foreign Institutional Investors;

(e)Foreign Portfolio Investors;

(f)Qualified Foreign Investors;

(g)Overseas Corporate Bodies; and

(h)Persons ineligible to contract under applicable statutory/regulatory requirements.

*Applicant shall ensure that guardian is competent to contract under Indian Contract Act, 1872

Applications should be made by the Karta in case the Applicant is an Hindu Undivided Family (HUF) . If the Application is submitted in joint names, the Application Form should contain only the name of the first Applicant whose name should also appear as the first holder of the depository account held in joint names. If the depository account is held in joint names, the Application Form should contain the name and PAN of the person whose name appears first in the depository account and signature of only this person would be required in the Application Form. This Applicant would be deemed to have signed on behalf of joint holders and would be required to give confirmation to this effect in the Application Form. Please ensure that such Applications contain the PAN of the HUF and not of the Karta. In the case of joint Applications, all payments will be made out in favour of the first Applicant. All communications will be addressed to the first named Applicant whose name appears in the Application Form and at the address mentioned therein.

Although NCDs are considered safe investments for retail investors, they should always look into the credibility of the issuing company before investing.
Secured non-convertible debentures are backed by the company’s assets, which makes that low risk. If the corporation fails to honour the obligations of the NCD, the debenture holder can have a claim on the company’s assets to recover his investment. But unsecured NCDs don’t come with such protection, and in case of bankruptcy, the debenture holder can’t raise a claim against the company.
Retail investors need to understand the risks before investing.

Applications need to be submitted with the broker authorised to collect application forms of the Issue and should also ensure that bank account mentioned on the form is of ASBA Bank eligible for accepting applications. All the details needs to proper filled including Name, Demat account details and Bank details of the client. Broker will bid the application and provide TRS to the Investor.

• Login to Oneup via your Mobile App, TTweb, or opening oneup.indiainfoline.com
• Click on the NCD you want to apply for.
• Select the series you want to invest for and click ‘Next’
• Check the investor category and enter you UPI ID (upto Rs. 500000) or Bank Details (in case of more than Rs. 500000 – ASBA application)
• Click ”Proceed”
• A success prompt with application number will be displayed on successful bid.
• In case of ASBA, please take print out the filled form and sign. After signature pls submit to the specified bank mentioned in bank master.

Having a Demat account to invest in NCDs is essential as most debentures are issued in dematerialised mode.

Open a free Demat account with IIFL Securities in under five minutes and invest in various financial instruments from the app.

Through TTweb

1. Login to https://ttweb.indiainfoline.com/trade

2. Select Market.

3. Select IPO/FPO/Bonds

4. Click on ”View Status” at top right

5. Click on delete button icon, and confirm by clicking ”Cancel all Bids”.

6. Bids will be successfully cancelled. The blocked money will be released in a day or two.”

Through IIFL Markets App:

1. Open the IIFL Markets App

2. At top left, click on the hamburger (insert Icon) menu

3. Click on ”Invest” and select ”IPO/SGB/NCD”

4. Click on ”My Bids” at top right.

5. Click on delete button icon, and confirm by clicking ”Cancel all Bids”.

6. Bids will be successfully cancelled. The blocked money will be released in a day or two.

A bid is considered successful once you approve the mandate received on your UPI app. Once bid placement is successful, your money will be blocked and will remain in your savings account till allotment is done.

‘Please follow below process to apply online IPO as Non-IIFL customer:

1. Go to Oneup.indiainfoline.com (Mobile or desktop browser)

2. Enter email id, phone number, Pan and authenticate via OTP

3. Select the NCD you want to bid for

4. Select the series and amount and click on ”Next”

5. Enter the Name, select DP type and enter the DP ID and Beneficiary ID

6. Select the category you want to apply for and click on ”Save Changes”

8. Enter the UPI ID, sub-broker code(optional) and click “Proceed”

9. A success prompt with application number will be displayed on successful bid.

Only selected UPI handles approved by NPCI, can be used for NCD bidding. You can check if your UPI handle is supported or not from here.

(https://www.npci.org.in/what-we-do/ipo/live-partners)

The UPI mandate request takes 15-20min post bidding to reflect on your UPI app. However it may take upto the end of the day.

The NCD allotment process involves following steps-

1. All eligible applications are grouped on the basis of investor categories- ‘Institutional’, ‘Non-Institutional’, ‘High Net Worth Individual’ and ‘Retail Individual Investors’.

2. Allotments are done on first come first serve basis for each category as per their reserved quota.

3. In case of under subscription in any Category, priority is given to the Retail Individual Investors, High Net Worth Individual Investors, and rest, if any, shall be first made to applicants of the Non Institutional investors, followed by the Institutional investors on a first come first serve basis,

4. In case of an oversubscription, allotments to the maximum extent is made on a first-come first-serve basis and thereafter on proportionate basis. This means full allotment is done to the Applicants on a first come first basis who have applied one day prior to the date of oversubscription. The rest are proportionately alloted, irrespective of their application size. So, if 1000 NCDs are left and then there are 1000 applicants left, each will get 1 NCD. If the applicants are more than the number of NCDs left then eligible applicants are picked using a draw of lots.