NON CONVERTIBLE DEBENTURES (NCD)
Non-convertible debentures ( NCD )are the financial instruments which are issued by companies to raise medium to long-term capital. NCDs are debt instruments with a fixed tenure and people who invest in these debentures receive regular interest at a certain rate.
WHY IS IT CALLED NON-CONVERTIBLE ?
Some debentures can be converted into shares after a certain point of time. This is done at the discretion of the owner. However, this is not possible in the case of NCDs. That’s why they are known as non-convertible.
TYPES –
NCDs are of two types:
(i) Secured NCDs: The issuer pledges specific assets as collateral against defaults on the NCDs
(ii) Unsecured NCDs: No specific assets are pledged as security/collateral for the loan
LIQUIDITY –
Since they are listed on the stock exchanges, NCDs are easy to withdraw. Redeeming/withdrawing NCD investment may be a little tougher than selling regular stocks/shares, but they are more liquid than bank fixed deposits.
HIGHER INTEREST RATE –
NCDs generally have higher interest rate than the Bank fixed deposits. The unsecured NCDs offer much higher rate and in some cases in double digits.
The major players which raise funds through NCDs are housing finance companies, gold loan companies and NBFCs.