Investing in shares can be a fruitful diversification of your investment plan if the route is chosen wisely. Retail investors often look for better returns and feel the dilemma between IPOs and NCD investments. Let us take a quick peek at this context.
What is NCD?
Non Convertible Debentures (NCDs) are financial instruments with long-term plans. It is issued by a company with a specified tenure promising to pay a prefixed interest rate to the retail investors. There are two types of IPO in India, in this category.
- Secured NCDs
Secured NCDs assure repayment of invested money to a considerable extent if the issuing company falls on the default list. The return on investment (ROI) is comparatively lower than the unsecured ones.
- Unsecured NCDs
Unsecured debentures offer a higher ROI but also hold a higher risk of repayment. The bigger the risk the higher is the repayment rate.
What is NCD IPO?
A privately-owned company enters the IPO listing to initiate a process of new capital infusion, raise capital from the market by introducing shareholders, and facilitate convenient trading of existing assets.
This financial investment instrument is a redeemable and secure corporate bond issued by a company. It is done to raise money from investors to enhance capital. No equity is attached to them. In fact, they are tradable and listed on the stock exchanges of India.
They are also called corporate bonds and come with debt securities from the issuing company. The features of NCD IPO are:
This financial investment instrument is a redeemable and secure corporate bond issued by a company. It is done to raise money from investors to enhance capital. No equity is attached to them. In fact, they are tradable and listed on the stock exchanges of India.
They are also called corporate bonds and come with debt securities from the issuing company. The features of NCD IPO are:
- Maturity period ranges from 90 days to even 30 years considering the rules set by the issuing company
- Accumulated money is considered a part of the company’s capital structure
- The issuing company is barred from converting it into equity shares
- This financial instrument offers a higher rate of return than other conventional investment instruments
Example of NCD IPO
IndiGrid offered NCD IPO for retail investors with a face value of Rs 1000/unit. It offered an annual interest rate of 8.2%. Hence, if you invest in 10 units, your investment will be Rs (10 x 1000) = Rs 10,000.
If the tenure is for 10 years then the total amount would be =
This is how the return on investment in NCD IPOs is calculated based on the coupon rate and face value.
Retail investors and high net-worth individuals (HNI) have enjoyed the 40% issue size of NCD IPO from this company. The coupon rates are:
If the tenure is for 10 years then the total amount would be =
This is how the return on investment in NCD IPOs is calculated based on the coupon rate and face value.
Retail investors and high net-worth individuals (HNI) have enjoyed the 40% issue size of NCD IPO from this company. The coupon rates are:
- 3 years - 6.75%
- 5 years – 7.6%
- 7 years – 7.9%
- 10 years – 8.2%
Why NCD IPO is better than regular IPO?
Considering the definition and features of regular IPO and NCD IPO, we can clearly understand the latter option is better due to the following reasons.
- Higher level of security
Secured NCD IPO offers a higher level of security of investment done by retail investors. The stock market fluctuates due to several reasons affecting the return on the stocks you have invested in. On the contrary, NCD IPO India offers a fixed ROI after the specific tenure ends.
- Companies with good credit rating
Secured NCDs can only be issued by companies with a brilliant credit rating. Hence, the risk of investment reduces to a minimum.
Conclusion
From the above discussion, we can clearly understand how NCDs are better tools of investment than IPO offerings. These debenture bonds can be bought and traded online utilizing different online platforms.