What is the difference between convertible and non convertible debenture?

Convertible debentures are a type of debentures that can be converted into equity shares of the company. Non-convertible debentures are defined as the type of debentures that cannot be converted into equity shares of the company.

What is non convertible debenture?

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 do you mean by convertible debenture?

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.

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 can issue non convertible debentures?

9.1 NCDs may be issued to and held by individuals, banking companies, Primary Dealers (PDs) other corporate bodies registered or incorporated in India and unincorporated bodies, Non-Resident Indians (NRIs) and Foreign Institutional Investors (FIIs).

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.

What happens when a nonconvertible debenture matures?

For nonconvertible debentures, the date of maturity is also an important feature. This date dictates when the issuing company must pay back the debenture holders. The most common form of repayment is called a redemption out of capital. Through this redemption, the issuing company makes a lump sum payment on the date of maturity.