NCD Flooding in India:

NCD is a loan to a company which cannot be converted into equity. It seems a growing interest among Indian companies to raise funds through non-convertible debentures (NCD). A number of companies have already issued NCD in year 2009 starting with Rs 500 crore issue of Tata Capital followed by Shiram Transport and Tata Motors. These issues received encouraging support from investors. HDFC and L&T Finance have floated NCD issues after the positive response of Shriram Transport and Tata Motors. Besides these heavy weights, small microfinance institutions like GVMFL are also following the NCD route to raise funds.

NCD attracts investors because these companies are offering returns of up to 12% per annum which is much higher than other fixed debt instruments with around 8-9% return per year. Due to the high volatility and sudden change in fortunes in the current Stock Market ,the NCD issues have seen wide interest and positive response from risk averse investors. Although retail investors also participated in large numbers, Companies have secured huge amount from the major players including mutual funds, banks, insurance companies and financial institutions.

The capital raised through the NCD will be used to strengthen the lender’s long-term resources and enhance its capital strength which will boost the Indian economy in general as well as provide a comparatively safe investment option to the investors.