Private credit vs secured NCDs is a comparison that comes up often among HNIs who want fixed-income style exposure with some form of security behind it. Both involve lending to companies, both can be backed by assets, and both are built around interest income. But they are structured, accessed, priced and exited very differently, and treating them as substitutes can lead to poor allocation decisions.
For investors who access private credit through a Fund of Funds (FoF), there is an additional layer. The FoF does not lend to companies itself. It invests in underlying private credit funds, and those funds make the loans. This guide explains private credit vs secured NCDs through seven essential differences, where each may fit in an HNI portfolio, what risks apply to each, and what to check before investing.
What Are Secured NCDs?
A Non-Convertible Debenture (NCD) is a debt instrument issued by a company to raise money from investors. It pays interest, called the coupon, and returns the principal at maturity. It cannot be converted into shares, which is what “non-convertible” means.
A secured NCD is backed by specific assets of the issuer, such as property, receivables or other assets, through a charge created in favour of a debenture trustee who acts on behalf of the investors. Secured NCDs may be issued through public issues or private placements, are usually rated by a SEBI-registered credit rating agency, and may be listed on a stock exchange.
When you buy a secured NCD directly, you hold a single instrument from a single issuer. Your outcome depends on that issuer’s ability to pay, the quality of the security and, if you want to exit before maturity, the depth of the secondary market.
What Is Private Credit?
Private credit refers to loans that are negotiated privately between a lender and a borrower, rather than issued to the public or traded on a market. In India, investors typically access it through Alternative Investment Funds (AIFs), which pool capital from eligible investors and lend to businesses and projects through structured loans, often with security, covenants and ongoing monitoring.
Investors can reach private credit in two ways: by investing directly in a private credit AIF, or through a Fund of Funds, which invests in several private credit funds. If you are new to the asset class, start with our guide, what is private credit AIF.
Private Credit vs Secured NCDs: 7 Essential Differences
1. Structure and Access
A secured NCD is a standardised instrument, and many are available to a broad set of investors, sometimes in relatively small amounts, through public issues or exchanges. Private placements may carry their own eligibility terms.
Private credit through an AIF is a pooled fund structure available only to eligible investors, with a regulatory minimum commitment and a Private Placement Memorandum (PPM) that sets out the fund’s strategy, fees and risks. This is why private credit AIFs are generally accessed by HNIs, UHNIs, family offices and institutions.
2. Security and Protection
In a secured NCD, the security is defined in the offer document and held by a debenture trustee. The investor’s protection depends on the nature of the assets, the security cover the issuer must maintain, the trustee’s oversight and the issuer’s rating. The terms are largely standardised, so the investor generally accepts them as offered.
In private credit, security and protections are negotiated for each loan. They may include charges over assets, escrow arrangements, promoter guarantees and financial covenants. This allows tailoring but also means the quality of protection varies by manager and transaction.
3. Returns and Yield
A secured NCD has a stated coupon and maturity, so its contractual cash flow is clear when you buy it. If you sell before maturity, the price you receive can differ from the price you paid, which affects your realised outcome.
A private credit fund earns income from interest, fees and premiums on loans it originates, and investors receive what remains after fund costs. In a Fund of Funds, fees can apply at two levels. Pricing in either market reflects the risk taken: a higher yield generally signals higher risk, not a better deal. Neither offers guaranteed returns.
4. Liquidity and Exit
Listed secured NCDs can be sold in the secondary market before maturity, but trading volumes are often limited, particularly for smaller or lower-rated issues. An investor may have to accept a discount, or may not find a buyer at all at a given time.
Private credit AIFs are generally closed-ended with a defined tenure and no easy way to redeem early. Capital is committed for the life of the fund, and distributions depend on underlying loans being repaid. HNIs should treat this capital as long-term and plan liquidity accordingly.
5. Diversification
A direct NCD holding gives exposure to one issuer. Building a diversified NCD portfolio means selecting multiple issuers, sizing each position and monitoring each credit yourself.
A private credit fund holds a portfolio of loans, so a single commitment gives exposure to multiple borrowers. A Fund of Funds goes one step further by spreading exposure across several underlying funds and managers. Diversification reduces the impact of one failure but does not remove credit risk. For more, read, fund of funds portfolio construction.
6. Credit Assessment and Monitoring
For a secured NCD, the investor relies on the credit rating, the offer document and the trustee. Ratings are opinions that can change, and the investor does the rest of the analysis.
In private credit, the fund manager sources, underwrites, negotiates and monitors each loan, and can engage directly with the borrower if early warning signs appear. In a Fund of Funds, the FoF manager also selects and monitors the underlying funds. The quality of this work is a major driver of outcomes, which is why manager selection matters so much.
7. Transparency and Valuation
Listed NCDs come with public disclosures, ratings and observable market prices. Private credit funds report through periodic statements and valuation reports under SEBI’s framework, but private loans do not have daily market prices, so valuation is less frequent and relies on the manager’s policy. Investors should review how a fund values its investments.
Private Credit vs Secured NCDs: Side-by-Side Comparison
| Feature | Private Credit | Secured NCDs |
|---|---|---|
| Structure | Pooled fund lending through negotiated loans | Standardised debt instrument from one issuer |
| Access | Available to eligible investors, subject to regulatory minimum investment requirements | Broader access, often with smaller investment amounts |
| Security | Negotiated for each loan; may include assets, escrow arrangements and covenants | Defined in the offer documents, with security held through a debenture trustee |
| Liquidity | Generally closed-ended with a defined tenure | May be sold through an exchange if listed, but liquidity can be limited |
| Diversification | Built into the fund; potentially broader through a Fund of Funds | Investor must build diversification across multiple issuers |
| Monitoring | Managed by the fund manager; in a Fund of Funds, the FoF manager also monitors underlying funds | Involves issuer disclosures, rating oversight and debenture trustee oversight; investors should conduct their own assessment |
| Valuation | Periodic, based on the fund’s valuation policy | Market price may be observable if listed and actively traded |
Risks to Understand in Each
Secured NCD investors face credit risk, since a secured instrument can still default. They also face liquidity risk in thinly traded issues, interest rate risk on price if sold early, and enforcement risk, because the value realised from the security may be lower or later than expected. Ratings help, but they are not guarantees.
Private credit investors face credit risk within the fund’s portfolio, concentration risk if exposure is not diversified, illiquidity risk due to the fund’s tenure, valuation risk and manager risk. A Fund of Funds adds layered fees and reliance on look-through reporting from the underlying funds. Returns are not guaranteed in either case.
When Might Each Fit an HNI Portfolio?
Secured NCDs may suit investors who want a defined coupon and maturity, can assess issuer credit and value the possibility of a secondary market exit. Private credit through a Fund of Funds may suit investors who are comfortable with a longer horizon, want diversification across managers and prefer professionally managed selection and monitoring.
For many HNIs the answer is not either-or. Some hold listed instruments for defined maturities and relative liquidity, and allocate a measured portion to private credit for diversification and access to lending opportunities not available in public markets. The right split depends on liquidity needs, risk tolerance and overall portfolio goals. For a comparison with listed corporate bonds, read, AIF vs corporate bond.
What HNIs Should Check Before Investing
For a secured NCD, useful questions include: What is the issuer’s credit rating and rating history? What assets secure the issue, and what security cover is promised? Who is the debenture trustee? How liquid is the issue on the exchange? What happens if the issuer misses a payment?
For private credit through a Fund of Funds, useful questions include: Which underlying funds does the FoF invest in, and how are they selected? How is exposure spread across managers, sectors and vintages? What are the total fees at both levels? What is the fund’s tenure and how do distributions flow through? How does the manager handle underlying loans that fall behind?
Regulatory Context
Private credit funds and Fund of Funds structures offered as AIFs in India operate under SEBI’s Alternative Investment Funds Regulations, which cover registration, categorisation, disclosures, reporting and investor eligibility. A fund’s strategy, fees, tenure and risk factors are set out in its PPM. NCDs are debt securities regulated under SEBI’s framework for issuance and listing of debt securities, with disclosure, rating and trustee requirements. Tax treatment of interest and distributions differs by instrument and investor, so investors should confirm the position with a qualified tax advisor.
You can review SEBI’s AIF regulatory framework on the official SEBI website.
Final Thoughts
Private credit vs secured NCDs is not a question of which is better, but of which fits your goals, liquidity needs and risk tolerance. Secured NCDs offer a defined coupon, standardised terms and a possible secondary market exit, but concentrate exposure in one issuer. Private credit through a Fund of Funds offers diversification across managers and negotiated protections, in exchange for a longer lock-in, less liquidity and layered fees.
The practical takeaway for HNIs is to look beyond the word “secured” in both cases and ask what the security is, who monitors it and how the structure performs when things go wrong.
If you would like to see how a diversified private credit approach can fit alongside your existing fixed-income holdings, Explore ElementOne’s private credit Fund of Funds. Explore ElementOne private credit Fund of Funds.
Frequently Asked Questions
What is the difference between private credit vs secured NCD investments?
A secured NCD is a standardised debt instrument from one issuer, backed by assets and held by a debenture trustee, which may be tradable on an exchange. Private credit is accessed through a pooled fund that lends through negotiated loans, is generally closed-ended and is available to eligible investors.
Are secured NCDs safer than private credit?
Neither is inherently safer. A secured NCD can still default, and its security may take time to enforce. Private credit carries credit, liquidity and manager risk. Safety depends on the specific issuer or fund, the quality of the security and the discipline of the structure. Returns are not guaranteed in either case.
Which is more liquid, private credit or secured NCDs?
Listed secured NCDs are generally more liquid in principle, although trading can be thin. Private credit AIFs are typically closed-ended with a fixed tenure, so investors should expect to stay invested until the fund winds down.
How does a Fund of Funds invest in private credit?
A Fund of Funds does not lend to companies directly. It invests in underlying private credit funds, which make the loans. The FoF manager selects the funds, spreads exposure across managers and strategies, and distributes proceeds to investors after fees and expenses.
Can an HNI invest in both private credit and secured NCDs?
Yes. Many HNIs hold both, using listed instruments for defined maturities and relative liquidity, and private credit for diversification and access to private lending.
