A bank deposit pays 7%; a company deposit pays 9%; an NCD pays 10%. The extra is not generosity and it is not a better deal that banks somehow missed — it is the price of taking credit risk that a bank deposit does not carry.
Money in a bank is safe and pays little. Lending to a neighbour who runs a business pays more, and depends entirely on his business. Both are lending; only one has a queue of protections behind it.
A bank FD sits behind regulation and deposit insurance. A corporate FD is an unsecured loan to one company. The rate difference is the market pricing that gap.
The three products compared
| Bank FD | Corporate FD | NCD | |
|---|---|---|---|
| You are lending to | A regulated bank | One company | One company |
| Typical extra yield | — | +1 to 2% | +2 to 3% |
| Deposit insurance | Up to ₹5 lakh per bank | None | None |
| Security | Regulatory + insurance | Usually unsecured | Secured or unsecured — read which |
| Tradeable | No | No | Listed ones, though thinly |
| Exit before maturity | Penalty | Often difficult | Sell on exchange, at whatever price exists |
What the rating is telling you
Every issue carries a credit rating, and the rating is the single most informative thing on the offer document. The yield offered is almost perfectly explained by it.
- Modest extra yield over a bank deposit
- Strong parentage or a long payment record
- Reasonable for a portion of a debt allocation
- Still no insurance — size it accordingly
- Noticeably higher yield, for a reason
- The extra 3% does not compensate for a total loss
- Historically where retail money has been lost
- Not where a conservative allocation belongs
A listed NCD trades, so its price moves with rates. If you may need to sell before maturity, that is a second risk on top of credit.
"Secured" and what it actually means
- 1Secured or unsecured
A secured NCD has specific assets charged against it, which puts you ahead of unsecured creditors. It does not guarantee full recovery — only a better place in the queue.
- 2What the security actually is
A charge on receivables from a struggling business is worth far less than a charge on real property. The document says which.
- 3The rating, and its outlook
Rating plus outlook. A negative outlook on a three-year instrument is a statement about the period you will be holding it.
- 4Interest payment frequency and taxation
Interest is taxed at your slab rate as it accrues or is paid. A cumulative option defers cash but not necessarily tax.
A three-year NCD offers 10.5% against a bank FD at 7%. What is the honest description of that extra 3.5%?
Bank mein paisa safe hai aur kam deta hai. Padosi ke dhandhe mein lagao toh zyada milta hai — aur woh uske dhandhe pe tika hai. Bank FD pe ₹5 lakh tak insurance hai; company FD pe kuch nahi. Extra 2-3% wahi farak hai, koi behtar sauda nahi.
- The extra yield is the price of credit risk, not a better deal.
- Bank deposits are insured up to ₹5 lakh; corporate FDs and NCDs are not.
- "Secured" improves your place in the queue; it does not guarantee recovery.
- The best case is a few percent extra; the worst case is the principal.
- If the highest yield is what attracted you, size it like equity, not like a deposit.
Mark it done to track your progress through the curriculum.
Common questions
Short, direct answers to what people ask about this topic.
- ncd meaning in share market
- NCD stands for non-convertible debenture — a bond issued by a company to borrow directly from the public, paying a fixed rate of interest for a fixed term, with no option to convert it into equity shares at any stage. You are a lender to that one company rather than a shareholder, so your return is the coupon and your risk is whether the company pays. Interest on an NCD is taxed at your slab rate, not at the lower rates that apply to equity gains.
- a debenture backed by a specific charge on the company’s assets is known as
- A secured debenture. The charge is created in favour of a debenture trustee who holds the security on behalf of all holders, which places you ahead of unsecured creditors if the company defaults. Secured does not mean guaranteed — it improves your position in the recovery queue, and what you actually recover depends on what the charged assets turn out to be worth, so the offer document’s description of the security matters as much as the label.
- is a company fd covered by the 5 lakh deposit insurance
- No. The ₹5 lakh DICGC cover applies only to deposits held with banks, per depositor per bank, and does not extend to deposits with companies or NBFCs. A corporate FD is an unsecured loan to a single company, so if it cannot pay you stand in the queue of ordinary creditors with no insurer behind you. That missing protection is the main reason a corporate FD quotes a higher rate than a bank deposit of the same tenure.
- why do corporate fds pay more than bank fds
- Because you are taking credit risk that a bank deposit does not carry, and the extra yield is the price the market puts on it. A bank deposit sits behind banking regulation and deposit insurance up to ₹5 lakh; a company deposit is an unsecured loan to one business, repaid only if that business generates the cash to repay it. The gap is compensation for that difference rather than a better deal the banks somehow overlooked.
- can I sell an ncd before maturity
- Only if it is listed, and only at whatever price the exchange order book offers that day. Listed NCDs trade on NSE and BSE, but volumes in most issues are thin, so exiting a sizeable holding can mean accepting a noticeably worse price than the last quote suggests. Unlisted NCDs and corporate fixed deposits usually have no exit route at all before maturity, which makes the tenure a commitment rather than a preference.