A credit rating is an assessment of how likely a borrower, typically a company or government, is to repay the principal and interest on a debt instrument on time. When you invest in a bond or NCD, the credit rating gives you a quick indication of the risk involved.
In India, credit ratings are assigned by agencies such as CRISIL, ICRA, CARE, and India Ratings. The rating scale works as follows:
- AAA — Highest safety, lowest risk of default
- AA — High safety, very low risk
- A — Adequate safety, low risk
- BBB — Moderate safety
- BB and below — Higher risk, speculative
- D — In default
Ratings from AAA to BBB are generally considered investment grade. Anything below that carries significantly higher risk.
A company with an AAA-rated NCD is considered very safe but typically offers lower interest rates. A lower-rated issuer may offer higher interest to attract investors but carries a higher chance of default.
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