InvestorQ : Is it safe to invest in NCDs as they offer better returns than Fixed Deposits?
Siya Saran made post

Is it safe to invest in NCDs as they offer better returns than Fixed Deposits?

Answer
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Rishita Das answered.
7 months ago


The difference between the rates offered by Non-Convertible Debentures (NCDs) and Fixed Deposits is the highest in a decade. Even the interest rates offered by the lowest-rated companies are 4-6% higher than the highest rate offered on FDs. This huge difference is surely an attractive option for the investors, however, the experts believe that the exposure shall be limited.

The reason behind the rise in yields is on account of investor aversion to lower-rated instruments. Prices and bond yields are inversely related. 

Now, here’s an analysis – Even the lowest-rated companies are offering interest rates that are much more attractive than Bank FDs. This means that one would prefer investing in low-rated companies over the safe bank options and here’s what investors might be doing wrong. Better interest rates/ returns should never be the reason after seeing which the investors shall invest, it should be the performance of the company and not the returns, as returns are variable and shall not be confused with the reliability of the company.

If you actually want to invest in NCDs make sure you do that in a good-rated company and not the lower-rated because it would not be a good option in the long-run.