Why are NCD IPOs important to invest in?

Through this method, the company uses fixed-term instruments to raise money in the form of loans from the public at a predetermined rate of return. These are known as Non-Convertible Debentures as these cannot be converted into shares. They are of 2 types;

1. Secured NCDs – This tranche of NCDs is basically secured by the assets of the company. Therefore, in case the company is unable to pay back its borrowers, the assets could be liquidated, and the amount derived by it could be utilised to pay back the company borrowers.

2. Unsecured NCDs – These are not secured against the assets of the company. Hence, they are riskier and offer higher yields when compared with the secured NCDs, to compensate for the risk borne by the borrowers.

● Compared to conventional investment options like bank FDs, government bonds or securities, etc NCD IPOs offer higher interest rates .

● Listed NCDs are exchangeable (Tradable) on the open market, providing both liquidity and a chance for capital growth for the investor.

● Even unsecured NCDs have preference over equity owners in the company’s profits.

Consequently, it may be said that the investors’ investment is essentially a secured one.

● Competent credit rating organisations evaluate the company’s creditworthiness before issuing NCDs, and the RBI is also heavily involved in the company’s regulation. It provides a sort of protection to the investment.

Investors can choose to invest in NCD IPOs for as low as Rs. 10000 and can choose their return options like monthly, quarterly, half-yearly or annually. They may consider a cumulative option as well, which they can withdraw at the time of maturity. The NCD IPOs come with various maturity options such as 3 years, 5 years, 7 years or 10 years, which the investor can choose based on their cash flow requirements.

As previously stated, that NCD IPOs are generally a secure one, and if there were to be any problems with company's financial performance or unable to pay the interest for the customers, there is a body called NCLT that will take over this specific issuance and act as the trustees for all holders of debentures. In the event of any liquidation, NCLT will take up this issue. However, an investor can plan out his cash flows if they are aware of the securitization and the type of asset being offered at the time of issuance. Additionally, these are frequently listed papers.

This implies that there is no lock-in time associated with it and you ultimately acquire and sell your shares of stock. The exchange also allows you to buy and sell debt products.

The NCD IPOs issuance has been resurging in the market recently. There have been more than 25 issuances in a year and SEBI has been stressing on the importance of such issuance for the retail investor to reap the benefits. In order to encourage retail investors to participate in the NCD IPOs, SEBI has reduced the face value from Rs. 10 lakhs to Rs. 1 lakh which allows for such debt products to reach rural, tier 2, Tier 3 cities.

Over the current decade alone, the Indian debt market has witnessed NCD IPO issuance of 286 debt products and raising of Rs 213035 lakh crores, where the retail investor has been benefiting quite significantly. In the coming years the number of issuance can possibly go higher because of the awareness getting generated among investors, along with the government's encouragement for issuing debt instruments for the benefit of retail investors.

The union budget is around the corner and India's inflation has been below 6% in the last month. Hence we cannot expect a rate hike immediately as it may lead to the possibility of interest rate cooling off within the next 12 to 18 months. Therefore, if investors want to receive a greater return, now would be the time to do so as the NCD IPOs that are currently being issued and those that are expected to launch in the upcoming months are giving higher interest rates.

When compared to other products, NCD IPOs offer larger returns, and they may also be excellent choices for portfolio diversification. Before investing, the investor ought to do the necessary due diligence with regard to the issuing company. A few parameters need to be evaluated like the issuer, primarily financial strengths of the company, NCD IPOs credit rating, and a previous track record of payment clearance to investors. Such background screening would enable you to plan your investments more effectively.

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