How to buy NCDs or non convertible debentures?

You need to have the usual trading and a demat account to buy a non convertible debenture (NCD). The process to buy a NCD is the same as that for a share.

You log into your trading account or ask your broker to buy you an NCD on your behalf. The manner in which you buy and the brokerage is the same as that for shares. The NCDs are held in your demat account.

Since NCDs carry a fixed coupon rate, you would receive the interest payment on the record date fixed by a company. Say for example, you buy a NCD on March 10 of Shriram Transport and the record date is fixed at March 15, you would be entitled to interest to be paid for the year.

However, if you buy on March 16, you would get interest only in the next year. It's interesting to note that the price of the NCD would fall automatically and would be lower on March 16, as compared to March 10, when you would be entitled to interest.

Most of the NCDs are presently offering a yield that is higher then most of the bank deposits and even higher then the initial at par offering.

How it works?

A host of companies recently offered non convertible debentures for investors. Some of these include India Infoline, Religare, Shriram Transport Finance. These companies raise money by way of NCDs for a period ranging from 1-5 years and offer you a coupon rate or interest rate.

Say for example Shriram transport offered NCDs at a face value of Rs 1000. These NCDs then get listed on the exchanges at a price. If you want to hold the NCDs, you can hold them and Shriram will pay you back after the tenure and while you hold you continue to receive interest. If you need money you sell the NCDs at the exchanges, in which case you will not receive any interest.

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