Non-convertible debentures

Debentures are long-term financial instruments that formally establish the debt obligation of the issuer. Notably, some debentures possess the option of conversion into equity shares, exercisable at the discretion of the holder on completion a time period. In contrast, debentures without this conversion feature are commonly designated as non-convertible debentures (NCDs).

Non-convertible debentures are strategically employed by companies as instruments for procuring long-term capital via the avenue of a public offering. To mitigate the absence of conversion options inherent to these debentures, lenders are typically incentivized with a commensurately higher rate of return, differentiating them from their convertible counterparts.

Additionally, non-convertible debentures (NCDs) provide a spectrum of advantages to their owners, including enhanced liquidity facilitated by their listing on the stock market, favorable tax exemptions at the source, and a sense of security due to their issuance by companies boasting a commendable credit rating, adhering to the regulatory guidelines stipulated by the Reserve Bank of India for NCD offerings. It's noteworthy to know that in the Indian context, NCDs are typically issued with a minimum maturity period of 90 days.