A Negotiable Certificate of Deposit (NCD) is a short-term investment with a minimum face value of $100,000, also known as a jumbo CD
. NCDs are guaranteed by a bank and can be traded in a highly liquid secondary market
. They are not convertible into shares or equities
. Key features of NCDs include:
- Interest Payments : Interest is usually paid either twice a year or at maturity
. The interest rates on NCDs are negotiable, and the yield from an NCD is dependent on money market conditions
- Risk : NCDs are considered safe and stable investments, with the Federal Deposit Insurance Corporation (FDIC) insuring them for up to $250,000 per investor
. However, they can be riskier than Treasury bills due to the possibility of a specific bank or financial institution defaulting
- Secondary Market : NCDs have a highly liquid secondary market, allowing investors to sell their NCDs if they require funds before maturity
- Put and Call Options : Some NCDs come with put or call options, providing investors with flexibility to surrender the NCD and get back their principal if interest rates rise or if the company calls the NCD and offers a lower prevailing market interest rate
Non-Convertible Debentures (NCDs) are long-term financial instruments issued by companies for specified tenures
. They are used to raise funds for companies, offering various benefits such as high liquidity through stock market listing, tax exemptions at source, and safety since they can be issued by companies with good credit
. Investors in NCDs can earn a regular income while managing liquidity and risks
