Factors to consider before investing in NCDs

Three non-convertible debentures (NCDs) issues - Edelweiss Housing Finance, Muthoot Finance and Ugro Capital – are set to open for subscription this week. Put simply, an NCD is a financial instrument used by companies to raise long-term capital. Companies raise such capital through public issues in tranches. It is a debt instrument with fixed tenure that pays out regular interest at a certain rate, which is higher than bank fixed deposit rates and hence attractive. However, you must first understand the risks involved by studying the company’s prospectus. You should evaluate the company’s financial health, credit rating and end-use of funds to be raised, among other factors, before taking a call.