A STUDY ON RISK AND RETURN RELATIONSHIP OF NON-CONVERTIBLE DEBENTURES OF SELECTED COMPANIES IN INDIA
A Non-Convertible Debentures (NCD) is a debt instrument with an initial maturity of up to one year that is issued through private placement by a company, including Non - Banking Finance Corporations (NBFCs), to raise money. NCDs are considered to be debt and cannot be converted into equity. An NCD's interest rate is set by the firm that issued the NCD. Companies raise money through NCDs for meeting of working capital needs, long term debt repayment, expansion ambitions, and other general corporate goals. Typically, the investment vehicle offers a greater interest rate than fixed bank deposits. In India, SBI, the largest lender in the nation by assets, offers a 6.75 percent return on fixed deposits held for five to ten years. Interest rates on NCDs typically range from 8 to 12 percent per annum. NCDs are required to get ratings from at least one credit rating agency. This provides investors with information about the issue's level of safety. The offer paper must include information on the rating and exactly what it represents. Even if the issuer does not agree with any of the ratings, if the NCD has received ratings from more than one agency, all of the ratings must be published. The company's financial situation can be determined in part by looking at its credit rating. Investors that like steady profits with less risk may wish to think about investing in NCDs. Along with adding the security of fixed income, the instrument can assist diversify the portfolio. If held until maturity, interest from non-convertible debentures is included in income and subject to the applicable income tax rate. According to the risk-return trade-off, the reward increases with risk and vice versa. Based on this theory, low levels of uncertainty correspond to low potential returns, whereas high levels of uncertainty correspond to high potential returns. The risk-return trade-off states that investing money can only result in bigger returns if the investor is willing to endure a higher likelihood of losses. In order to demonstrate the influence on the risk and return trade-off, specific organisations were chosen for the study on the relationship between risk and return and non-convertible debt at this period. As such, this paper makes an attempt to find out the risk and return relationship of NCDs of selected companies in India.
Non-Convertible Debentures, Risk, Return, Beta value and maturity