Product : Bonds/ Debentures
Non-convertible debentures are issued by the company so as to raise money from public. It is for a specific tenure where the company pays a fixed interest on the investment. NCDs cannot be converted into shares. On maturity, principal amount along with interest will be paid. Agencies such as CRISIL, ICRA, CARE and Fitch Ratings give ratings to the company that raise money through NCD.
NCD can be secured or unsecured. Secured NCDs are backed by the issuer company’s assets to fulfil the debt obligation.
- As NCD’s are listed on stock exchanges, they provide liquidity to holder
- The tenure of NCDs can be anywhere between 2 years and 20 years
- NCDs are rated by rating agencies such as CRISIL, ICRA and FITCH
- If you buy a NCD that pays interest then the interest will not attract TDS
- The debentures are generally offered in four options: monthly, quarterly, annual and cumulative interest
Fixed income products such as bank/company deposits and bonds are popular with risk averse investors as they provide safety of capital with returns in the form of fixed periodic payments and the eventual return of principal at maturity. Most investors, regardless of age should have at least a small amount of their portfolio allocated to fixed income products like bonds. This adds safety and consistency to a portfolio.
Tax Free Bonds
The income by way of interest on these Bonds is fully exempt from Income Tax and shall not form part of Total Income as per provisions under section 10 (15) (iv) (h) of I.T. Act, 1961. These bonds are generally issued by Government Backed entities and thus have very low default risk.
Capital Gain Bonds (54EC Bonds):
According to section 54EC, any person (individuals, HUFs, partnership firms, companies etc.) can avail exemption in respect of long-term capital gains (arising from the sale of long term capital asset other than equity shares and securities), if the capital gain is invested in Capital Gain bonds. The exemption will be the amount of capital gain or the amount of investment made, whichever is less. Interest rate offered on these bonds is 5.75% per annum with 5 year lock in period. Maximum investment is Rs 5000000 in a financial year per individual.