Company Deposits, Debentures (NCD)

Company Deposits, Debentures (NCD), Tax Fee Bonds, Capital Gain Bonds are available with us.

Company Fixed Deposits

Company fixed deposit is a deposit in company for a fixed rate of return over a fixed period of time. The rate of interest is determined by the tenure of the deposit as well as other factors. The deposit made in a company fixed deposit is governed by section 58A of the Companies Act.

Benefits

• Higher rates of interest.
• Flexible tenure ranging from 6 months to 7 years.
• Nomination facility available.
• Regular interest incomes – monthly, quarterly, half-yearly, or yearly.

However, as these deposits are unsecured, in case of default by a company, the investor cannot sell the deposit documents to recover his amount. The investor has no claim over the assets of the company in case of winding up of the company. This makes Company Fixed Deposit a risky investment option. Hence, performance of the company should be reviewed from time to time and at the maturity of deposit, by analysing Balance Sheet & Share Prices movement. This will be helpful in deciding whether the deposit should be renewed or not.

Debentures

Debentures are debt instruments with a fixed tenure issued by companies to raise money for business purposes. The Company that issues the debenture promises to pay the investor the face value on maturity and regular interest payments depending up on the coupon or interest rate.

Debentures are of two type; Convertible and Non Convertible Debentures (NCD)

Convertible Debentures – are those debentures which are converted to normal equity shares after a specified term. Till that time these debentures earn regular income in form for interest but once they are converted to equity shares, they are just like normal shares.

Non Convertible Debentures (NCD) – are those debentures which are not convertible to equity shares. A NCD can be a secured NCD and unsecured NCD. Secured Non convertible Debentures (NCD) are backed by some assets which can be liquidated for paying off the bond holders in case of default. For this reason, the returns on secured NCDs are lower than unsecured NCDs. Unsecured Non convertible Debentures (NCD) are the ones which are not backed by any assets and incase company is in financial crunch, there can be delay or default in paying back the bond holders.

Features of NCD’s

• They are listed on stock exchanges. Hence, provides liquidity to holder.
• The tenure of NCDs can be anywhere between 2 years and 20 years.
• NCDs are rated by rating agencies such as CRISIL.
• The debentures are generally offered in four options: monthly, quarterly, annual and cumulative interest

Taxation on NCD –

All interest earned on NCDs—periodic payouts or cumulative interest at maturity—is taxed under “Income from Other Sources” and added to your total income. It’s taxed according to your income tax slab rate (10%, 20%, or 30%)

Bonds

Bonds are more or less the same as debentures. Generally term bond is used to public debt securities belonging to government and PSU’s.
Capital Gain Bonds (54 EC Bonds)
These bonds are specifically for investors who have made some long term capital gains, and would like to save capital gain taxes on this amount. Capital Gain Bonds are instruments offering you tax exemption for transferring gains of long term capital assets. As per provisions of IT act, 1961, any long term capital gains arising from transfer of any capital asset would be exempt from tax u/s 54 EC of the act.

Features of Capital Gain Bonds

• Capital realized is invested within 6 months of the date of transfer is eligible.
• Tenure is 5 Years. To avail of capital gain exemption, the bonds so acquired cannot be transferred or converted into money or any loan or advance can be taken on security of such bond within 5 years from date of acquisition else, the benefit would be withdrawn.
• These bonds are classified as “long-term specified asset” and are issued by NABARD, REC, NHAI, NHB and SIDBI.
• The interest from these bonds is fully taxable.
• No Tax Deducted at Source (TDS).
• Maximum 50 Lakh investments in a financial year for availing 54EC benefit.
• Short term gains are not covered under section 54EC.

Tax Free Bonds

Tax Free Bonds are instruments where interest earned is not taxed. It means regular income received is tax free to investor. These bonds will be eventually listed on the Bombay and National Stock Exchange, so investors will have the option of selling them before the full term of the bond.

Government of India Bonds (Taxable Bonds)

Popularly known as G-Secs. Just as companies borrow money from markets by issuing debentures, GOI does so by issuing G-Secs. G-Secs are more secure investment as they represent a guarantee by the Central Government.