Ms.Shalini asked :
Dear Sir,

What are NON-CONVERTIBLE DEBENTURES (NCDs)?
How safe are Tata capital's recently open secured NCDs? Is Income from them is taxable?

Shalini

 SRIKANTH SHANKAR MATRUBAI replied :
Dear Shalini,
How are you?. I remember answering your query in August last year. Hope you are sticking to your investment in HDFC Top 200 Fund....
Non Convertible Debentures (NCDs) are those that cannot be converted into equity shares of the issuing company, as opposed to Convertible debentures, which can be. Non-convertible debentures normally earn a higher interest rate than convertible debentures do. NCDs have a fixed maturity.

Tata Capital has come out with a NCD issue of Rs.500 Crores with an option to retain oversubscription of upto 1000 crores. It offers an attractive interest rates : 11% for the monthly option, 11.25% for the quarterly option and 12% for the annual or cumulative option.
Due to Strong Promoters and Tax Benefits (due to listing in NSE), no TDS and relatively easy liquidity, I recommend you to consider investing in this NCD.
The NCD is secured and shall rank pari passi with other credit holders. Even Banks and Company FDs do not offer this safety. The Company also proposes to create a Debenture Redemption Reserve towards maturity. The NCD offer is also rated by ICRA at LAA+ indiciating Investment Grade.
The NCD offers Monthly, Quarterly, Annual and Cumulative Options. Of all the options, the cumulative option appears most attractive, as it allows investors to reinvest the interest proceeds at high coupon rates of 12 per cent. This instrument is shielded from the interest rate and re-investment risks. For Rs 10,000 invested today, a cumulative amount of Rs 17623 pre-tax can be earned at the end of five years.
Best of luck,
Srikanth Shankar Matrubai

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