An NCD (Non-Convertible Debenture) is a type of fixed-income financial instrument used by companies to raise long-term funds. Unlike convertible debentures, NCDs cannot be converted into equity shares of the issuing company. Instead, they provide the holder with regular interest payments over a specified period and the return of the principal amount upon maturity.
NCDs are typically issued by companies when they need to raise capital but prefer not to dilute equity. Investors are attracted to NCDs because they offer higher interest rates compared to traditional bank deposits and bonds. NCDs can be secured, backed by the assets of the issuing company, or unsecured, depending on the structure of the debenture.
Key features of NCDs include:
- Fixed interest: NCDs pay a fixed interest rate to the investor, usually on a semi-annual or annual basis.
- Maturity period: They come with a defined maturity period, after which the principal is returned.
- Tradable: NCDs can often be traded on stock exchanges, providing liquidity to investors.
- Risk factor: Since they are debt instruments, the risk depends on the creditworthiness of the issuing company.
NCDs are commonly used by companies in industries such as infrastructure, finance, and utilities to raise capital for long-term projects.