Muthoot Finance Ltd is offering a Non Convertible Debenture (NCD) with a yield of +13% from tomorrow, i.e. 22nd December, 2011. Before we detail the Muthoot NCD issue, let's understand what is a NVD. Non-convertible Debentures / Bonds are debt instruments with a fixed tenure issued by companies to raise funds from the market for business purposes. Unlike convertible debentures, NCDs cannot be converted into equity shares of the issuing company at a future date. Hence, the return offered by them is relatively higher than convertible debentures. The issuing company pays a fixed rate of interest for the pre-defined period.

The interest is paid at different time periods, say, quarterly, semi-annually and annually. Some debentures also have cumulative option i.e. interest on them is cumulated and paid on maturity. These debentures can be redeemed after a specified time period so the amount invested, which is equal to the face value, will be returned to the investor. These are the good investment option for people who are looking beyond the fixed deposits and other small savings instruments or for those who want to create a diversified debt portfolio by investing in different instruments.