Non-convertible debentures (NCDs) are debt instruments that corporations issue to raise funds from the public. Unlike convertible debentures, NCDs cannot be converted into equity at a later date. While NCDs offer attractive coupon rates and potential returns, it is important to understand the risks involved. In this blog, we will explore three crucial checkpoints that investors should consider before making NCD-related investment decisions. By following these checkpoints, you can aim to earn decent returns while protecting your underlying capital.
NCDs Credit Rating: Credit ratings play a significant role in assessing the creditworthiness of NCDs. These ratings are based on factors such as loan repayment history, default ratio, and credit cycle length. Ratings like AAA+ and AA+ indicate high creditworthiness, while ratings like BB+, C, or D indicate lower credit quality. It is essential to evaluate the credit rating of NCDs to gauge the associated risk.
Coupon Rate: Considering the risk involved in NCDs, it is crucial to expect a healthy return that covers inflation costs and provides a competitive edge. The coupon rate indicates the interest payment made by the debenture and its frequency, whether monthly, quarterly, or annually. Assessing the coupon rate helps determine if the return justifies the risk associated with the NCD.
Financial Statements: When investing in NCDs, it is important to analyze the financial statements of the issuing company. In the event of default, the company must repay the loan. Hence, a strong asset base is crucial to compensate debenture holders. Reviewing the company’s balance sheet and cash flows provides insights into its financial stability, liquidity, and overall health. Additionally, it is essential to differentiate between secured and unsecured NCDs, as they have different risk profiles based on the backing of issuer assets.
Invest with AlgoBulls: At AlgoBulls, we understand that investing in NCDs can be challenging due to a lack of knowledge and accessibility. Our AI-powered platform offers a well-assembled fixed-income palette, where you can conveniently access NCDs and sort options based on your requirements. Whether you seek higher yields, specific tenure, or a safety net, our user-friendly platform provides a complete overview of costs, interest rates, and maturity amounts. With AlgoBulls, you’ll have a reliable ally on your investment journey.
Disclaimer: The information provided in this blog is for educational purposes only and should not be considered as financial or investment advice. It is crucial to conduct thorough research, evaluate risk factors, and seek professional guidance before making any investment decisions. AlgoBulls does not guarantee the accuracy or reliability of the information provided. Investing in NCDs involves risks, and investors should carefully consider their financial situation and risk tolerance before proceeding.