NCD Investors

NCD investors are the persons who apply for an NCD issue to obtain an allotment of NCDs.

NCD investors intend to lend money to the companies in the form of debt against a fixed rate of interest. They are the lenders of the company and not the shareholders.

In an NCD IPO, different types of investors are invited to subscribe to the issue. As in the case of an equity IPO, NCD IPO also allows institutional and non-institutional, high-net-worth individuals and retail investors to apply for the issue. In the case of NCD, these investors are divided into different categories as Category I, II, III and IV.

Non-Convertible Debentures Investors

These investor categories are explained in more detail below:

1. Category I: Institutional Investor (QIB)

Institutional investors (also referred to as Qualified Institutional Buyers QIB) form Category I of the NCD issue, which includes the below :

• Public Financial Institutions, Scheduled Commercial Banks, and Indian Multilateral and Bilateral Development Finance Institutions.
• Provident and Pension Funds with a minimum capital of Rs. 25 crores each.
• Superannuation Funds and Gratuity Funds.
• SEBI registered Venture Capital Funds and Alternative Investment Funds.
• Insurance companies registered with IRDA (Insurance Regulatory and Development Authority of India).
• State Industrial Development Corporations.
• National Investment Fund was set up by the Government of India and published in the Government Gazette of India.
• Insurance funds are set up and managed by the Indian Union Army, Navy or Air Force, or the Department of Posts.
• SEBI registered Mutual Funds.
• Non-banking financial companies registered with the Reserve Bank of India (RBI) with net assets of more than Rs. 500 crores as per the latest audited financial statements.

2. Category II: Non-institutional investors (NII)

Non-institutional investors form Category II of investors eligible for NCDs, which include the following:

• Companies as defined under Section 2(20) of the Companies Act, 2013.
• Body corporates and societies registered under applicable laws in India.
• Cooperative banks and regional rural banks.
• Educational institutions and associations of persons and/or bodies established pursuant to or registered under any central or state statutory provisions.
• Trusts Including Public/private charitable/religious trusts.
• Associations of persons.
• Scientific and/or industrial research institutions.
• Public sector entities and companies registered under applicable Indian law.
• Cooperative banks and regional rural banks.
• Foundations, including public/private charitable/religious foundations, and scientific and/or industrial research institutions.
• Partnership firms in the name of partners and limited liability partnerships.
• Any other incorporated and/ or unincorporated body of persons

3. Category III: High Net Worth Individual Investors (HNI)

High Net Worth Individuals (HNI) form Category III of NCD investors, which include resident Indian individuals or Hindu Undivided Families who apply through Karta for an amount exceeding 10 lakhs.

4. Category IV: Retail Individual Investors (RII)

The Retail Investors form Category IV of the NCD Investors and include Resident Indian Individuals and Hindu Undivided Families who apply through the Karta applying for an amount up to and including ₹ 10 lakhs in aggregate for all series of NCDs.

Investors who cannot apply for NCDs

There are some restrictions on the list of NCD applicants. These include:

• Minors without a guardian’s name* (A guardian can apply on behalf of a minor. However, the guardian's name must also be included on the application form);
• Foreign nationals, including NRIs, who are
  1. based in the USA, and/or,
  2. domiciled in the USA, and/or,
  3. residents/citizens of the USA, and/or,
  4. subject to any taxation laws of the USA.
• Persons resident outside India and other foreign entities.
• Foreign institutional Investors.
• Foreign portfolio Investors.
• Non-resident Indians.
• Qualified foreign Investors.
• Overseas Corporate Bodies.
• Foreign venture capital funds.
• Persons who are not eligible to contract due to applicable legal/regulatory provisions.

Ideally, RBI allows NRIs and foreign investors to invest in NCDs. However, due to stricter FEMA regulations, hardly any company in India allows these investors to invest in NCDs and we usually find these names on the list of ineligible investors in the NCD offer documents.

Some important points that every NCD investor should know and consider before investing in an NCD:

• Self-study the offering document and carefully review the risks, credit rating, company overview and financial health check of the company.
• Understand your financial objective, risk appetite and holding capacity.
• Investors should contact the registrar about the issue if they have any problems. The offer document contains an email address for investor complaints and the contact details of the registrar.