What is the call option in NCD?

Call option in NCD gives flexibility to the issuing company to withdraw from NCD before the maturity date.

In the call option, the issuing company can ask the NCD holder to surrender their NCD and take their investment amount back along with the interest due till then. An NCD with call option attached to it has a little higher rate of interest compared to NCDs with put option or normal NCD as it is in favour of the company.

Generally, a company exercises a call option in 2 scenarios:

1. When the company has earned enough money to repay and thus save interest.
2. When interest rates fall, the company redeems the existing NCDs and issues new NCDs at a lower interest rate.

A call option can only be exercised by the company after the NCD has covered specified period. A date for the exercise of the Call Option is specified in the Offer Document if the Call Option is applicable.