NCD AS INVESTMENT AVENUES

Bank FDs interest rates falling month after month, investors need to look beyond bank deposits for better returns. A few companies have sold their debentures to retail investors which have been subsequently listed in stock exchanges.
Non-convertible-debentures (NCDs) of Tata Capital, Shriram Transport and L&T Finance are some MCD's on the block.
Exit is not easy when locked with NCDs . NCDs are listed on exchanges, and hence, theoretically offer daily exit, but the volumes here are limited. On many days, there are none at all.

Risk Vs return
NCDs are meant for conservative investors who don’t wish to take the risk of ups and downs of the stock market. Getting lured by the high interest rate alone is not advisable

“Investors should do a proper analysis of the strengths and weaknesses of a company before subscribing to its debentures,” says Ritesh Jain, who heads fixed income at Morgan Stanley Investment Management. He feels it may not be smart to blindly follow others, as “credit quality” of the paper is the most important aspect of investment in a company’s debt
One also needs to find out why the issuing company is raising the funds — whether it is for meeting its working capital requirements, paying off other loans or starting a new venture. If the funds raised are to be used to repay another loan, one needs to take a call.
From Taxation viewpoint“Interest from NCDs is taxed as per the slab rate applicable, which means an NCD yielding a 10.5% return could offer a post-tax return of around 6.5-7%,” says financial planner Gaurav Mashruwala. Therefore, those in the highest tax bracket need to take a call on whether they want to stay invested in a (relatively) illiquid debenture or a liquid (mutual) fund.