FDs, NCDs, SGBs
Fixed Deposits (FDs)
A fixed deposit (FD) is a financial product offered by banks and other financial institutions that allows an individual to deposit a fixed amount of money for a specific period of time, typically ranging from a few months to several years. The depositor earns interest on the deposited amount, and the interest rate is generally higher than that of a regular savings account. The interest rate offered on a fixed deposit is generally higher than that of a savings account and it is fixed for the entire duration of the deposit.
Non Convertible Debentures (NCDs)
Non-Convertible Debentures (NCDs) are a type of debt instrument issued by companies and other entities to raise capital. NCDs are generally issued in the form of a promissory note, which states that the issuer will repay the principal amount of the NCD along with interest to the holder on a specified date.
Unlike other debt instruments, such as bonds, NCDs cannot be converted into equity shares of the issuer. This means that the holder of an NCD cannot participate in the ownership or management of the company that issued the NCD.
NCDs are typically issued for a fixed term, ranging from a few months to several years, and they typically pay a fixed rate of interest to the holder. They can be traded in the secondary market, and their prices fluctuate based on interest rates and the creditworthiness of the issuer.
NCDs are generally considered as a fixed income instrument, and are considered as a relatively safe investment option as compared to equity shares. However, the credit risk of the issuer must be considered before investing, as an issuer’s ability to pay interest and principal on time can change over time.
Sovereign Gold Bonds (SGBs)
Sovereign Gold Bonds (SGBs) are debt instruments issued by the government of India, which are denominated in grams of gold. They are issued to investors as an alternative to buying physical gold.
SGBs are issued through an auction process and are generally sold in denominations of 1 gram of gold or more. The bonds have a maturity period of 8 years and the interest rate on the bond is fixed by the government. Investors can purchase the bonds either through cash or by selling their existing physical gold holdings.
The bonds are tradable on stock exchanges, and the price of the bond is linked to the prevailing market price of gold. The interest on the bond is paid semi-annually to the bondholder.
SGBs provide an opportunity for investors to invest in gold in a paper form and provide an alternative to buying and holding physical gold. They are considered as a relatively safe investment option as compared to equity shares, and are also eligible for statutory liquidity ratio (SLR) and statutory credit ratio (SCR) purposes. Additionally, SGBs are free from issues like making charges and purity of gold.