Partner With Us

Comparing NCDs/Bonds and Debt Mutual Funds

If you are investing regularly, you are aware of different asset classes. You balance your portfolio by spreading your investment between equity and fixed income assets. Government and corporate bonds or debentures have been the most commonly used fixed income instruments. Regular investment in debt mutual funds can add more diversification to your financial platter. Know more about these investment products before you choose to put in your hard-earned money.

Basics of bonds

Bonds are debt instruments issued by governments or corporates for a fixed tenure. When you invest in a bond, you are bound to receive fixed returns every year from the issuer. At the end of that predetermined tenure, your bonds mature, and you get the principal back along with any outstanding interest return. The interest from bonds is not affected by market conditions, and hence it's one of the most preferred debt instruments.

There are four main types based on the issuing authority:

  • Corporate bonds
  • Municipal bonds
  • Government bonds
  • Agency bonds

Apart from these, there are different types of bonds, depending on their quality or variety:

  • Convertible bonds: These are issued by corporations and can be converted to shares of the issuing authority’s stock.
  • Non-convertible bonds: Unlike convertible bonds, these cannot be converted to stock.
  • Tax-free bonds: The interest received from these bonds is fully exempted from income tax.
  • Capital gains bonds: These are one of the best ways to save long-term capital tax.
  • Bank bonds: Banks issue these to fund their operations.

An unsecured bond can be called a debenture. There is only a slight difference between bonds and debentures: the latter are issued only by companies and not governments.

What is NCD?

One of the most common types of debentures is the non-convertible debenture (NCD). A subscribe can convert a convertible debenture into stock, while an NCD does not have that provision. When a company wants to raise money without diluting its equity structure, it goes for the NCD investment strategy. Here the investors get a fixed rate of income. Of course, a company with a brand value can quickly raise more money in the market as people trust it to repay the loan.

What are debt funds?

A mutual fund is an investment scheme that collects money from investors and then uses this accumulated corpus to buy/sell financial instruments. You can choose the investment category for your funds. If you decide to invest in debt, that mutual fund is known as the debt fund or debt mutual fund. These funds are all about investing in debt instruments. You can decide to sell the returns from debt mutual funds at the current market price. Another option is a reinvestment through the fund manager.

Comparing bonds/debentures and debt mutual funds

You can compare bonds/debentures and debt mutual funds on certain essential financial aspects. Following are some of these points:

Fixed income for investors: Bonds provide fixed returns to the investor as the promised interest rate isn’t affected by market fluctuations. However, debt funds do not come with any fixed income. Here the returns depend on the current market price of the underlying bonds.


Open-ended mutual funds are available for redemption whenever you need the money. That is not the case with bonds. They come with a fixed tenure, and you can redeem them on maturity. Some are listed in the debt market on stock exchanges.


Bonds always promise fixed pay-outs at fixed time intervals. They also return the principal amount on maturity at the end of the predetermined tenure.  But debt mutual funds do not promise any return. So, you have to invest in these mutual funds by calculating the risk-return reward.

Portfolio management

It is not easy to identify the right type of bonds independently. The ratings of bonds help you choose them. When creating a portfolio of bonds or NCDs, you need to know about them well. On the other hand, if you invest in a debt fund, you get a ready portfolio managed on your behalf by a qualified fund manager.


Mutual funds have emerged as popular investment options. You can buy them online or offline. You can invest in a mutual fund or access them from home comforts by merely clicking a button. But bonds are not always accessible online. It would help if you had a full-service brokerage to offer you online investing in bonds.

Summing up

As an investor, you must believe in your investment horizon and financial goals. Many investors, even the savvy ones, buy bonds to bring stability and market volatility exposure. Of course, you can also choose debt mutual funds to diversify your investment portfolio. Open your account with ICICI direct and take advantage of this diversification.

Most Popular

  • 15 Sep 2021
  • ICICI Securities

5 Most Popular Reasons for Switching Bank

In the beginning, you would hear from them quite often. But of late, you're noticing more and more signs that it's no longer working. We are referring to your relationship with your bank. Click here to read how to recognize the red flags in your banking relationship and why it might be a good time to end the bond.

  • 15 Sep 2021
  • ICICI Securities

How Intraday Trading Works? Detailed Ideas

Intraday trading in India has been gaining momentum of late. It is no longer the option of only trade pundits.

  • 15 Sep 2021
  • ICICI Securities

What is Intraday trading? A Beginner's Guide

With the advancement of technology and increased knowledge about the stock market, trading is no more a domain dominated by stock pundits.

  • 05 Sep 2021
  • ICICI Securities

Is it Good To Invest in Cyclical Stocks?

Akin to how the pedals of a cycle go up and down as it moves forward, the share price of certain stocks goes up and down in accordance with the economic cycles a country goes through. 

  • 05 Sep 2021
  • ICICI Securities

A primer on Fixed Maturity Plans

If you happen to have some surplus funds which you don’t need for a specific period, but you don’t want to take the risk of investing this money in the stock market, you can very well put this money in a Fixed Maturity Plan or FMP. 

  • 05 Sep 2021
  • ICICI Securities

How to Choose the Best Equity Mutual Fund

You must have heard a lot about investing in mutual funds. But before jumping on this trend you need to assess a mutual fund scheme according to your goals, investment horizon, risk profile, liquidity needs and many other factors to find a suitable match. 

  • 05 Sep 2021
  • ICICI Securities

A Beginner’s Guide to Monetary Policy Tools

The Reserve Bank of India has the incredibly crucial responsibility to formulate the monetary policy. The main objective of monetary policy is to control inflation and provide a conducive environment for the country's economic growth. 

  • 05 Sep 2021
  • ICICI Securities

Buying Penny Stocks and its Risks

There is a specific category of stocks whose prices are very low and they seem to yield exponential returns. But do you know that investment in such stocks could be risky? 

  • 05 Sep 2021
  • ICICI Securities

How to Choose the Best Debt Mutual Fund?

Debt mutual funds primarily invest in fixed income securities, which include money market instruments like commercial papers, corporate bonds, treasury bills, government bonds and other instruments.

  • 05 Sep 2021
  • ICICI Securities

Tax Saving Using Section 80D

“Make your life safe and get insurance immediately”. This statement was never more relevant than the times when the pandemic threatens to wipe off the population. 

Open an Account

Sign Up for Free


Please use the mobile no registered with Aadhaar.

OTP sent to +91 1234567890

Didn’t received OTP? Resend



Get Research Backed Recommendations.

Download The app now

or Scan below QR Code To download app