Non-Convertible Debenture IPOs and Sovereign Gold Bonds are famous investment avenues in India. Both provide unique benefits and cater to different investors. Let us explore why these instruments matter in India and how they contribute to the financial market.

 

What are NCD IPOs?

 

NCDs are debt instruments provided by companies to raise capital for business purposes. When a company initiates an Initial Public Offering for NCDs, it invites the public to invest in its debt instruments. An NCD IPO offers investors fixed interest rates and is non-convertible, meaning they cannot be converted into company equity.

 

Why do NCD IPOs matter?

 

  • Stable income for investors: One of the primary reasons NCD IPOs are essential is that they provide a stable income source. Investors receive periodic interest payments, which makes NCDs appealing to those seeking predictable returns, such as retirees or risk-averse investors.
  • Diversification of investment portfolio: NCDs offer an option for investors looking to diversify their portfolios. Instead of putting all their money into Stocks or Mutual Funds, investors can add fixed-income securities like NCDs, balancing their risk.
  • Corporate funding: NCD IPOs are a significant way for companies to raise funds for expansion, working capital, or other business needs. They provide an affordable financing option without diluting the company’s equity.
  • Regulated by SEBI: SEBI regulates NCD IPOs, which highlights transparency and protection for investors. This regulatory oversight adds to these instruments’ trustworthiness in the investing public’s eyes.

 

What are Sovereign Gold Bonds?

 

SGBs are Government Securities issued by the RBI. The Sovereign Gold Bond is backed by physical gold, allowing one to invest in gold without storing it physically. Investors get returns based on the market price of gold and earn additional interest.

 

Why do Sovereign Gold Bonds matter?

 

  • Safe investment option: SGBs are considered the safest investment option because the government backs them. The default risk is virtually non-existent, making them a popular choice for conservative investors.
  • Protection against Inflation: Gold is a hedge against inflation. When inflation rises, the value of gold increases, offering protection to investors. The Sovereign Gold Bond scheme lets you invest in gold without getting tensed about storage and security issues.
  • Attractive interest rates: Besides capital appreciation based on gold prices, SGBs offer an annual interest rate (usually around 2.5%), which makes them more attractive than holding physical gold.
  • No capital gains tax: Another critical benefit of SGBs is that they get exempt from capital gains tax if held until maturity. This makes them an efficient investment from a tax perspective compared to gold investments like jewellery or Gold ETFs.

 

Conclusion

 

NCD IPOs and SGBs hold significance in the Indian financial market for various reasons, as stated. NCDs offer a stable income stream and portfolio diversification, while SGBs provide a secure and inflation-protected investment in gold.