Corporate Non Convertible Debenture Corporate Fixed Deposit
Corporate non convertible debentures are unsecured bonds that cannot be converted to company equity or stock. Nonconvertible debentures usually have higher interest rates than convertible debenture. Corporate non-convertible debentures are used as tools to raise long-term funds by companies through a public issue. To compensate for this drawback of non-convertibility, lenders are usually given a higher rate of return compared to convertible debentures. Besides, NCDs offer various other benefits to the owner such as high liquidity through stock market listing, tax exemptions at source and safety since they can be issued by companies which have a good credit rating as specified in the norms laid down by RBI for the issue of NCDs. In India, usually these have to be issued of a minimum maturity of 90 days.
Corporate Fixed deposits are arrangement with an organization where a depositor invests his money in the corporate and is paid a regularly fixed profit. The amount of profit paid on the investment is fixed at the time of the investment by the corporate and will not increase or decrease at any time regardless of fluctuations in the interest rate. The interest rate usually offered by corporate fixed deposits is highly low compared to other investments of the corporate because these are low-risk investments. Fixed deposits have maturity tenure from two weeks to five years. Fixed deposits cannot be redeemed early. In other words, money cannot be withdrawn for any reason until the time-duration on the deposit has expired. In the case of early withdrawal penalty can be charged on the fixed deposit. These deposits are mobilised and governed by the Companies Act under Section 58A. The corporate fixed deposits are unsecured in nature as a result if the company defaults, the investor cannot sell the documents to recover his capital, thus making them a risky investment option.
In India most people lack confidence on Non convertible debentures because of the unsecured natures of the debentures, as result the investment in Non Convertible debentures are hugely low.
However there are multiple number of advantages that Non Convertible Debentures have over fixed deposits.
Demat form structure – This means there is less hassle in maintenance due lack of physical certificate.
On other hand in case of Fixed deposit hassle of physical certificate is there.
Tradable – All the non convertible debentures are issued under public offer are listed on BSE/NSE, thus there is no lock in period. The investor can exit before the maturity.
On other fixed deposit have specified time period and exit before mentioned tenure can result in penalty.
TDS – The non convertible debentures are in Demat structure and listed as a result no TDS deduction and no hassle of filling 15G form.
On other hand fixed deposits are not in Demat structure and as a result TDS will be deducted unless 15G form is filled.
Discovery of Price – Since non convertible debentures are listed hence can be traded regularly on exchange which opens up wider opportunity of earning more profit. Further with softening of interest rate in economy the price of non convertible debentures increases.
On other hand fixed deposits are binding structure in nature with fixed rate of interest, and as a result earning remains constant even when the interest rate in the market rises.
Security – Corporate NCD’s even though are unsecured in nature but still have security against its liquidity.
On other hand fixed deposits are insured up to Rs 1, 00,000 only.
Settlement option – The transaction is confirmed off-market, but settled on NSE/BSE platform Thus there is no settlement risk.
On other hand corporate fixed deposits cannot be settled if company defaults
Corporate Non convertible Debentures are way safer and money making investment when compared to Corporate Fixed deposits hence people should always choose wisely before investing in any instrument.