Bonds are debt securities floated by corporations or government entities to raise money from the public to fund their operations or projects. When you invest in bonds, you are actually lending money to the issuer of the bond generally at a fixed rate of interest and a fixed maturity period. Bonds are mostly secured and hence, safe investment bets.There are different kinds of bonds like Corporate Bonds, Government Bonds, Municipal Bonds, Tax free bonds, Floating rate bonds, Capital Gains bonds etc.
Non Convertible Debentures are long term investment opportunities issued by companies to raise funds. The NCDs have no collateral and hence heavily dependent on the creditworthiness of the company. The credit scores of the company issuing the NCD should be considered before investing in such instruments. Even the NCDs are rated by the rating agencies. NCDs carry a fixed rate of interest and a fixed maturity period. The money is raised through a public issue. Subsequently, they are traded over the counter or on the exchange. Investors in NCDs should do a thorough check on the company that is issuing the debentures with a view to the reason that the funds are being raised. NCDs issued by high rated companies are generally safe and offer certain other benefits like tax exemptions at source and high liquidity as they are tradable on the stock exchange before they reach maturity.
Corporate Fixed Deposits are term deposits like bank FDs. They offer fixed rate of interest and principal amount on maturity. However, instead of banks, corporate FDs are offered by non banking financial companies (NBFCs). Corporate FDs are very popular among informed investors since offer higher returns compared to bank FDs.
Different NBFCs offer different interest rates on their FDs. You should compare different FDs and make informed investment decisions. However, you should also take credit risk into consideration.
Credit risk refers to the NBFC's failure of meeting interest and / or principal payment obligations, exposing the investor to potential loss of income and / or capital. You should consider the credit rating of the instrument and make informed investment decisions.
Corporate FDs may offer different interest rates for different tenures; interest rates are usually higher for longer tenures. You should decide as per investment needs.
Corporate FDs offer both periodic (non cumulative) and cumulative interest pay-out. In periodic interest payout, the interest will be paid to monthly, quarterly, half yearly or yearly; the rate of interest will differ for different pay-out intervals. In cumulative interest pay-out the interest is re-invested and you get the benefits of compound interest. You should decide on cumulative or non cumulative interest depending on your investment needs.
