Why Bonds Should Be on Your Investment Radar in 2024?
India’s financial market has experienced a remarkable surge, with new and exciting opportunities capturing the attention of investors and borrowers alike. Among these investment instruments, Non-Convertible Debentures (NCDs) have emerged as a shining star, captivating market participants with their distinctive qualities and undeniable benefits.?
In this article, we embark on a journey to uncover the vast potential of NCDs and shed light on why they are rapidly gaining traction in the dynamic landscape of India’s financial realm.
Understanding Non-Convertible Debentures (NCDs)
To fully grasp the potential of Non-Convertible Debentures (NCDs), we must first have a clear understanding of what they are and how they operate. At their core, NCDs are compelling debt instruments utilized by companies to raise capital.
Unlike convertible debentures, which are convertible into equity shares of the issuing company, non-convertible debentures (NCDs) offer a fixed interest rate and a set maturity date. Understanding their intricacies is essential in harnessing the power of this investment avenue and unlocking its full potential.
Benefits of Non-Convertible Debentures
Non-convertible debentures (NCDs) present a plethora of advantages that entice both retail and institutional investors. Without a doubt, NCDs are an attractive investment option with a myriad of impressive benefits, including:
They are an excellent investment option for those looking to achieve higher returns on their investments. Unlike traditional fixed-income instruments like bank Fixed Deposits (FDs), NCDs offer investors higher interest rates.
This makes them an attractive option for those seeking fixed stable returns on their investments.
Investing in a single sector or single asset class can be risky, as it exposes investors to fluctuations within that particular industry/ class. Investors can diversify their portfolios by spreading investments into different asset classes like equities, debt, real estate, commodities, etc. On the other hand, while investing in the fixed asset class, investors can further diversify by investing in bonds of issuers from different industries with varying maturities.
This provides a level of protection from potential downturns in any one sector, thereby spreading their risk.
NCDs offer regular interest payments, which can be a reliable income stream for investors. These payments are typically monthly, quarterly, half-yearly, or annual, providing an attractive income option for those who depend on regular income.
Furthermore, NCDs provide diverse payment options that can be selected according to the specific investment needs, offering much-needed flexibility.
Another benefit of investing in NCDs is that they are listed on stock exchanges, making them a tradable investment option. Due to their feature of traceability, investments can be bought and sold on the secondary market before they mature, giving investors the freedom to exit their investments before the maturity time.
Additionally, the minimum investment starts from Rs.10,000 providing a convenient opportunity for small investors to participate in an attractive investment option.
Unveiling the Benefits of Bonds in 2024
India has witnessed an extraordinary surge in the popularity of Non-convertible Debentures in recent years, showcasing their immense potential in the Indian market. The growing appeal of NCDs can be attributed to an array of factors that have contributed to their success.
Let’s delve into these factors and unravel the reasons behind their tremendous growth in popularity:
1)? ? Infrastructure and Real Estate:
The remarkable growth of NCDs in India can be primarily attributed to the crucial role played by the infrastructure and real estate sectors. These sectors, known for their capital-intensive nature, often require substantial funding for their projects.
They have emerged as an optimal solution, allowing companies operating in these sectors to raise funds at competitive interest rates. This symbiotic relationship benefits both the borrowers and the investors, creating opportunities for wealth creation and driving economic growth.
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2)? ? Efficient Regulatory Framework:
The successful growth of the NCD market in India can also be attributed to the robust regulatory framework established by the Securities and Exchange Board of India (SEBI). With a focus on creating a secure and transparent market environment, SEBI has instilled confidence among investors.
This regulatory framework sets stringent guidelines for issuing and trading NCDs, ensuring investor protection and fostering trust in this investment avenue.
3)? ? Retail Investor Participation:
This investment option has garnered significant attention from retail investors due to the compelling combination of higher returns and lower risks compared to alternative investment options. As their awareness grows and access to them becomes more effortless, retail investors are increasingly considering them as a desirable addition to their investment portfolios.
This increasing retail participation further enriches the NCD market. It reflects the growing importance of this investment avenue among individual investors.
4)? ? Steady Interest Rate Environment:
The Reserve Bank of India (RBI) has refrained from increasing interest rates in its past five meetings. The stable interest rate environment in India, maintained by the prudent approach of the Reserve Bank of India (RBI), has contributed to the growth of NCDs. Investors are drawn to NCDs because they offer higher interest rates than typical bank Fixed Deposits (FDs), even though the RBI is cautious when changing interest rates.
This stability of the overall interest rate environment makes NCDs an enticing option for investors seeking enhanced returns on their investments.
5)? ? Credit Rating Agencies:
The presence of credit rating agencies in India plays a pivotal role in unlocking the full potential of non-convertible debentures. These agencies diligently evaluate the creditworthiness of companies issuing NCDs and assign ratings based on their meticulous analysis.
These ratings empower investors to make informed decisions by providing them with valuable insights into the credit quality of the issuers. This crucial role of credit rating agencies mitigates the risk of default. It ensures greater investor confidence in the NCD market.
6)? ? Corporate Funding:
NCDs have become a sought-after funding option for companies seeking to raise capital efficiently for short-term expenses. With streamlined documentation processes and faster processing times, they provide companies with a swift solution to their funding requirements.
Moreover, businesses can tailor NCDs to suit their financing needs, giving them a great deal of flexibility.
7)? ? Tax Benefits:
Certain NCD investments can yield tax advantages for investors, further enhancing their appeal.
These tax benefits make them an even more appealing choice for investors, particularly those in higher tax brackets.
Conclusion
Non-convertible debentures have emerged as one of the most compelling investment alternatives available in India. They offer investors the potential for higher yields, increased diversification opportunities, and regular interest payments. With a combination of these benefits and the added advantage of liquidity, they have the potential to unlock significant value for investor’s portfolios.
The NCD market in India is expected to continue growing in popularity due to a robust regulatory framework, increasing participation of retail investors, and a stable interest rate environment. As more investors become aware of their potential, the demand for this investment option will rise significantly.
At The Fixed Income, we help investors navigate the complexities of NCDs and other investment options to achieve maximal capital gains from their portfolios. Our specialists stay abreast of market trends and dynamics, keeping investors informed of all investment opportunities that match their specific needs.
We provide expert guidance and help investors evaluate potential risks and benefits, giving them all the information they need to make informed investment decisions. With a wealth of knowledge and experience in NCDs and other fixed-income alternatives, we help investors create a secure and lucrative investment portfolio that meets their long-term financial goals. Visit us soon or browse our website for additional details.
Disclaimer: Investment in the securities market is subject to market risks, read all documents carefully before investing.