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18.07.2022 - 04:17

How safe are NCDs (non-convertible debentures) compared to fixed deposits in private companies? What are the risks in an NCD investment?

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How safe are NCDs (non-convertible debentures) compared to fixed deposits in private companies? What are the risks in an NCD investment?

Answers (1)

Pansy April 5, 2023 в 13:53

NCDs are generally considered to be riskier than fixed deposits in private companies because they are unsecured debt instruments. This means that the repayment of principal and interest is not backed by any collateral or asset. On the other hand, fixed deposits in private companies are backed by a tangible asset and are considered to be safer investments. The risks associated with investing in NCDs include the credit risk of the issuer, interest rate risk, and liquidity risk. The credit risk refers to the possibility of the issuer defaulting on its payments. Interest rate risk arises because the value of NCDs can fluctuate with changes in interest rates. And finally, liquidity risk refers to the possibility of not being able to sell the NCDs when desired, due to lack of buyers in the market. Therefore, investors should carefully assess the credit rating and financial strength of the issuer before investing in NCDs, and should also consider holding these investments to maturity to avoid interest rate and liquidity risks.

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