Why NCDs Are Becoming the Preferred Choice for Indian Retail Investors in 2025
“NCDs offer Indian retail investors higher returns, lower risk, tax efficiency, and liquidity—redefining fixed-income investing dynamics.“
The last few years, Non-Convertible Debentures (NCDs) have become a go to investment option for retail investors in India. The equity markets have been volatile, interest rates have been rising, and a less risky investment option has been needed by retail investors. All of these trends have contributed to the attention being given to NCDs in 2025. These predictable income instruments tend to yield more than fixed deposits (FDs) and are yet less risky than equity investments.
In this article, we will address the top reasons for the recent popularity of NCDs for retail investors in India in 2025. The reasons this includes higher interest rates, tax benefits, opportunities for diversification, and support from regulators.
1.Higher Interest Rates Compared to Traditional FDs
The top reason for the growth in NCD investments is the additional returns offered via interest rates. In 2025, while the Reserve Bank of India (RBI) maintained elevated repo rates to counter inflation, NCDs were returning between 8% to 12% per annum; far more than the bank FDs (6-7%).
- Corporate NCDs (issued by NBFCs and manufacturing companies) offer higher yields (9-12%) compared to government bonds.
- Secured NCDs provide an added layer of safety, as they are backed by company assets.
- Regular interest payouts (monthly, quarterly, or annually) make them appealing for retirees and income-seeking investors.
With banks offering lower FD rates, retail investors are shifting towards NCDs for better returns without excessive risk.
2.Stability in a Volatile Market
The Indian stock market has faced increased volatility in 2025 from uncertainties of the global economy, tensions in geopolitics, and fluctuations in prices of commodities. Although equity exposure does provide higher growth, many retail investors are now looking for capital protection along with adequate returns.
- NCDs provide fixed returns, unlike equities, which are subject to market risks.
- Lower default risk (especially for AAA-rated NCDs) compared to low-grade corporate bonds.
- Predictable cash flows, making them ideal for conservative investors.
As a result, risk-averse investors are allocating a portion of their portfolios to NCDs to balance equity exposure.
3.Tax Efficiency with Indexation Benefits
Although the interest on NCDs is taxable as per the investor’s slab, the long-term capital gains are entitled to indexation (if held for more than 12 months). This makes NCDs a tax-efficient alternative to FDs, where the interest is 100% taxable.
- Capital gains tax on NCDs is 20% with indexation, reducing tax liability.
- Tax-free NCDs issued by municipal corporations or certain infrastructure projects (under Section 10(15) of the Income Tax Act) provide additional tax savings.
Investors in higher tax brackets find NCDs more attractive than FDs due to these tax advantages.
4.Ease of Liquidity Through Secondary Markets
Unlike traditional FDs, which impose penalties for premature withdrawals, NCDs offer liquidity through stock exchanges.
- Listed NCDs can be bought/sold on BSE/NSE, providing flexibility.
- No lock-in period (unlike tax-saving FDs with 5-year lock-ins).
This feature appeals to investors who may need funds before maturity without incurring heavy penalties.
5.Diversification of Investment Portfolio
Financial advisors in 2025 emphasize asset diversification to mitigate risks. NCDs serve as an excellent middle ground between high-risk equities and low-return FDs.
- Retail investors are diversifying across:
- Equities (for growth)
- NCDs (for stable income)
- Gold & Real Estate (for inflation hedging)
By including NCDs, investors achieve a balanced portfolio with reduced volatility.
6. Increased Financial Literacy & Digital Accessibility
The rise of fintech platforms, robo-advisors, and discount brokers has made NCDs more accessible to retail investors.
- Online platforms like Groww, Zerodha, and Kuvera allow easy NCD investments.
- SEBI’s investor awareness programs have educated retail investors about debt instruments.
- Social media & financial influencers highlight NCD benefits, driving adoption.
As a result, even young investors are exploring NCDs as part of their investment strategy.
7. Strong Regulatory Framework by SEBI & RBI
The Securities and Exchange Board of India (SEBI) and RBI have strengthened regulations to protect NCD investors:
- Stricter credit rating norms ensure only credible companies issue NCDs.
- Mandatory disclosure requirements improve transparency.
- Default risk mitigation through secured NCD structures.
These measures have boosted investor confidence in NCDs as a safe investment avenue.
8. Rising Demand from Retirees & Conservative Investors
With India’s aging population and increasing life expectancy, retirees seek regular income with low risk.
- Monthly interest NCDs act as a pension substitute.
- Senior citizens prefer NCDs over volatile mutual funds or stocks.
This demographic shift has contributed to higher NCD subscriptions in 2025.
9. Corporate Sector’s Reliance on NCDs for Funding
Indian corporates are increasingly opting for NCDs over bank loans due to:
- Lower borrowing costs compared to traditional loans.
- Retail investor participation reducing dependence on institutional lenders.
This trend ensures a steady supply of new NCD issues, giving investors more options.
10. Comparison with Other Fixed-Income Instruments
| Feature | NCDs | Bank FDs | Corporate Bonds | PPF |
|---|---|---|---|---|
| Returns | 8-12% | 6-7% | 7-9% | 7.1% |
| Taxation | Interest taxable | Fully taxable | Interest taxable | Tax-free |
| Liquidity | Tradable on exchanges | Penalty on premature withdrawal | Low liquidity | Lock-in 15 years |
| Risk | Moderate (depends on issuer) | Low | Moderate-High | Sovereign guarantee |
Conclusion
Non-Convertible Debentures (NCDs) are swimmingly serving as viable investment option for Indian retail investors, and now in 2025, they have become a go-to alternative for many different types of investors. Increased retail savour has shown how the investing landscape is shifting around different opportunistic avenues as the traditional bank fixed deposit offers diminished returns in the face of persistent inflation. Many of today’s saver’s deploy cash under various constraint, so equity markets are difficult for most investors to partake. NCDs represent a higher yielding investment than bank deposits, while remaining insulated from the volatile equity route of investing.
The current financial climate has seen the Reserve Bank of India traffic in interest rates not see surpassed in nearly forever. NCD’s have gained traction in collective silo’d investments because they introduce a clear investment narrative for various investors. Interest rate headlines usually include NCDs as corporate issuers announced rates substantially higher than are being offered from the bank, and the reporting is backed up by new regulatory practices that have instituted more prudent best practices and transparency when corporate issuers register NCDs. The flexibility of the investment exposure even drive anonymity for the investor today; NCDs are not harder, or they at least should not be hard for any investor to acquire in the current landscape of fixed income, as they can be bought and sold on an exchange unlike nearly 99% of fixed deposits which must be held lat in the banks for several years.
For the growing population of financially savvy retail investors in India, NCDs offer more than just another investment option. They provide a balanced investment strategy for wealth creation, especially useful for investors wanting to diversify beyond the traditional low-interest nature of fixed bank deposits and the high-risk nature of equities. As financial literacy increases and digital platforms allow investors to access these instruments, we can anticipate healthy, sustained demand for NCDs, likely changing how Indians invest in fixed-income products into the future.
The story of NCDs in 2025 is a growing recognition within the marketplace that moderate risk brings moderate returns; investments and financial instruments are becoming more sophisticated to meet the needs of consumers looking to invest like a generation ago. As a result, we are likely to see NCDs transition into a banking consumer stable resource for retail investors and not just a fad in the marketplace.
Reference
Reserve Bank of India (RBI)
- Monetary Policy Statements & Repo Rate History
https://www.rbi.org.in
Securities and Exchange Board of India (SEBI)
- Guidelines for NCD Issuances & OBPP Regulations
https://www.sebi.gov.in
National Stock Exchange (NSE)
- Debt Market Listings and Retail Participation Data
https://www.nseindia.com
Bombay Stock Exchange (BSE)
- Live NCD Trading Data and Corporate Bond Issues
https://www.bseindia.com
Ministry of Finance, Government of India
- Reports on Financial Inclusion & Bond Market Reforms
https://www.finmin.nic.in
Note: This report is intended for informational purposes only and should not be considered as financial advice. Investors should conduct their own research and consult with financial advisor before making any investment decisions.
