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Non-convertible debentures (NCDs) are debentures which cannot be converted into equities or shares. As the convertibility feature is not attached to these debentures, they usually carry higher interest rates than their convertible counterparts.

For those who are looking for the investment instrument that offers high returns with moderate risk and giving the flexibility of choosing between short and long tenures, NCDs might be the right choice.

An NCD can be secured or unsecured. Secured NCDs are backed by the issuer company's assets to fulfil the debt obligation unlike unsecured NCDs. The NCD issues are rated by credit rating agencies like CRISIL, ICRA, FITCH, and CARE to ensure the company's ability to service the debt on time & lower default risk.


As NCD’s are listed on stock exchanges, they provide liquidity to holder.
The tenure of NCDs can be anywhere between 1 years and 20 years.
If you buy a NCD that pays interest then the interest will not attract TDS.
The debentures are generally offered in four options: monthly, quarterly, annual and cumulative interest.


Interest earned through NCDs, if held until maturity, is clubbed with your income and taxed at your marginal income tax rate. If you sell your NCDs on the stock exchange before a year then you will have to pay short-term capital gains at income-tax rates applicable to you. If the debenture is encashed after one year but before its maturity, you will have to pay long term capital gains tax on the effective return at applicable rates.


Capital Gain Bonds (54EC Bonds): According to section 54EC, any person (individuals, HUFs, partnership firms, companies etc.) can avail exemption in respect of long-term capital gains (arising from the sale of long term capital asset other than equity shares and securities), if the capital gain is invested in Capital Gain bonds. The exemption will be the amount of capital gain or the amount of investment made, whichever is less.

Interest rate offered on these bonds is 5.25% per annum. The exemption is subject to:

The investment is made within a period of 6 months from the date of transfer of the asset

Lock-in-period of 3 years

Bonds sold, transferred or converted into money or any loan or advance taken on security of such bond within a period of 3 years from the date of acquisition, the capital gains earlier exempt are taxable in the year of sale or transfer of the bonds

Maximum investment limit of up to Rs. 50 Lakhs in a Financial Year per individual.

If the amount invested in bonds is less than the capital gains realized, only proportionate capital gains would be exempt from tax.

1) There are 3 issuers for Capital Gain Bonds .

A) REC (Rural Electrification Corporation Ltd)

B) NHAI (National Highway Authority of India)

C) PFC (Power Finance Corporation Ltd )