Non-convertible debentures (NCD) are fixed-income instruments, usually issued by high-rated companies in the form of a public issue to accumulate long-term capital appreciation. They offer relatively higher interest rates when compared to convertible debentures.

What is the difference between bond and NCD?

A major difference between NCDs and bonds is that while investing in NCDs, there is no requirement of mortgage or collateral whereas an investment in bonds requires the deposition of an investor’s asset. NCDs are bonds linked with a loan. These serve as debt instruments for building financial capital over time.

What is meant by convertible debentures?

A convertible debenture is a type of long-term debt issued by a company that can be converted into shares of equity stock after a specified period. Convertible debentures are usually unsecured bonds or loans, often with no underlying collateral backing up the debt.

Which is more attractive to investors a convertible bond or a non convertible bond explain why?

Companies with a low credit rating and high growth potential often issue convertible bonds. For financing purposes, the bonds offer more flexibility than regular bonds. They may be more attractive to investors since convertible bonds provide growth potential through future capital appreciation of the stock price.

What is Debenture simple words?

A debenture is a type of debt instrument that is not backed by any collateral and usually has a term greater than 10 years. Debentures are backed only by the creditworthiness and reputation of the issuer. Both corporations and governments frequently issue debentures to raise capital or funds.

Who should invest in non-convertible debentures?

Individual investors with moderate-to-high risk appetite can look at investing in non-convertible debentures (NCD). Two non-banking financial companies—Piramal Capital and Housing Finance (PCHFL) and IIFL Home Finance — have come out with their NCD issues.

Is it safe to invest in non convertible debentures?

NCDs have some inherent risk associated which an investor has to take into consideration before making any investment decision. The biggest risk is the credit risk. The company can default on the future payment and if it is unsecured NCD, an investor does not have any recourse.

Who can issue convertible debentures?

Typically, a convertible debenture is issued by a company and can be converted into equity shares eventually. Notably, the decision to convert debentures into equity shares lay with shareholders, and they are treated as the creditor or lender. Regardless, in some cases, issuers may possess the conversion rights.

Why are interest rates on convertible debentures so low?

The rate of interest on convertible debenture is low because they have the option to convert their holdings into equity while the rate of interest on non-convertible debentures is high because they do not have any option to convert their holding into equity and hence they require a higher rate of return on their investment.

What’s the difference between NCD and convertible debentures?

If at the end of the tenure the money/capital raised is returned along with the interest it’s called Non-convertible debentures (NCD). If the money raised is converted to equity at the end of the tenure,its called convertible debentures (CD).

What’s the difference between convertible bonds and non convertible bonds?

Debentures which can’t be converted into company stocks are called as non-convertible bonds. Rate of return: Since convertible debentures can be converted into company stocks whenever the holder pleases, they tend to have lesser rate of return compared to nonconvertible ones.

Which is the best type of debenture to invest in?

There are two types of debentures, Convertible and Non-Convertible Debentures (NCDs). These are Debt Instruments issued by companies to raise long-term capital. Non-Convertible Debentures are usually listed on the exchanges, and any Investor with a Demat Account can invest in it.