Analysis and Insights into the world of IPOs and investing in India

Saturday, December 17, 2016

What are Non Convertible Debentures (NCDs)?

In order to understand what are Non convertible debentures, let's first have a look at what are Debentures. A Debenture is a debt instrument which offers a fixed rate of interest for a specified tenure. Government and private companies use debentures to borrow money.

Debentures are simply loans taken by the companies and do not provide the ownership in the company. Thus, where equity shareholders are considered owners of the company, debenture holders are merely lenders to company

Debentures are of two types Convertible and Non-Convertible. The convertible debentures are the ones that can be converted into equity shares at a later time. Non convertible debentures does not convert into equity shares thus can yield a higher interest rate.

An NCD can be Secured NCDs (i.e. backed by the security of company's assets) or Unsecured. Secured NCDs (without any such security)
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