SEBI Decision on NCD: SEBI has taken steps for major changes in the non-convertible debenture market, through which NCDs with face value up to Rs 10,000 can be issued. Currently their face value limit is Rs 1 lakh.
SEBI Decision on NCD: SEBI has taken steps to implement a major change related to Non-Convertible Debentures (NCD). This will increase the participation of non-institutional investors in NCD or other such markets. In simple words, participation of retail investors will also increase in this NCD market.
What is SEBI’s step?
SEBI has proposed to allow companies to issue non-convertible debentures (NCDs) and non-convertible redeemable preference shares (NCRPS) with a face value of Rs 10,000. SEBI has proposed to reduce the face value limit of NCDs to Rs 10,000 for companies. According to the current system, NCDs with face value of Rs 1 lakh can be issued. For this, SEBI has given many suggestions in its consultation paper and has also given the reason for the recommendation.
What was said in the SEBI paper
According to the SEBI consultation paper, through this step an attempt is being made to increase the participation of non-institutional investors in the corporate bond market. Along with this, apart from protecting the interests of non-institutional investors, efforts have been made to reduce their financial risks and manage their assets.
What do market experts have to say?
Zerodha founder Nitin Kamath said on Monday that SEBI’s proposal to reduce the face value of corporate bonds could increase retail participation. Nikhil Kamath said that these can become a good means for them to make some savings and then invest in equity mutual funds and direct equity. Last year i.e. in October 2022, SEBI had reduced the face value of NCD or corporate bond from Rs 10 lakh to Rs 1 lakh.
Why did SEBI take this step?
As per the introduction of the regulatory structure for online bond platforms, a large portion of the investor base consists of non-institutional investors. Therefore, SEBI has suggested to reduce the minimum face value of debt securities issued on the basis of private placement and NCRPS. With this, participation of non-institutional investors in this market will increase, that is, retail investors will be able to invest more money.
What is special in SEBI’s consultation paper?
- In such cases, the issuer should appoint a merchant banker who will take appropriate action for issuance of privately placed NCDs or NCRPS and disclosures in the private placement memorandum.
- NCDs or NCRPS should be simple structured interest/dividend investment instruments and should be credit enhancing or financial risk taking with structured responsibilities.
Non-institutional investors are subscribing more to NCDs.
It has been informed in the paper of SEBI (Securities and Exchange Board of India) that the rate of non-institutional investors subscribing to NCDs has improved. Non-institutional investors subscribed for 4 per cent of the total amount raised during July to September 2023, while the general average was less than 1 per cent. In fact, in October 2022, the face value was reduced from Rs 10 lakh to Rs 1 lakh. These changes were seen after the Online Bond Platform (OBP) was brought into the mainstream.
What is NCD and how does it provide 8-10 percent interest?
- Along with raising money through IPO, companies can also raise money from NCDs.
When a company has to raise money through NCD, it takes it like a loan. - The company has to pay interest on the loan raised through NCD.
- NCDs have a fixed maturity date and investors who invest money in it get returns with a fixed interest rate.
- Understand it like the company has issued NCD in which you invest. The company gives interest at a fixed rate on your money invested in it.
- The company needs money and is raising it from investors, hence the interest on it is also
- somewhat high. Generally 8 to 10 percent returns are available on these NCDs.
- In NCD, different interest rates are fixed for different maturity periods.
- There are two types of NCDs – Secured NCDs and Unsecured NCDs.
- If the company is unable to pay the money to the investors, then the investors can recover their money by selling the assets of the company in secured NCDs .
- If the company is not able to return their money to the investors, then it is difficult for the investors in unsecured NCDs to get their money back.
- All NCDs are listed on the exchange, so investors can invest money either directly from the company or from the secondary market.
- In the NCD schemes issued in recent times, investors have got annual returns ranging from 8.5-9.5 percent to 10 percent.
- The maturity date of NCD is pre-fixed in which a lump sum amount is received at the time of maturity on monthly, quarterly, half-yearly or yearly basis.
- Money can be invested in NCD for 10 years.
- The interest received in NCD is taxable just like Fixed Deposit i.e. FD.
NCD of this company is currently open in the market
The NCD of Arka Fincap Limited has opened on 7 December 2023 and will close on 20 December 2023. The company has launched a public issue of secured, rated, listed and redeemable non-convertible debentures of Rs 1000 each. Rating agency CRISIL has given it a rating of AA-/Positive which comes in the category of better rating.
It has been launched for tenure of 2 years (24 months), 3 years (36 months) and 5 years (60 months) and it is proposed to be listed on BSE. The special thing is its interest which the company has kept at 9 to 10 percent.
This rate of interest will be given on quarterly and annual basis. The lead managers of the NCD issue are JM Financial Limited and Nuvama Wealth Management Limited. Nuvama Wealth Management was earlier known as Edelweiss Securities.
