A member of the leadership team with over 17 years spent working at the
intersection of Investment Analysis, Personal Finance, and Technology.
Hands-on experience across multiple functions including Index Construction,
Index Maintenance, Asset Allocation, Portfolio Construction, Managing a
team of Digital Relationship Managers, etc
A member of the leadership team with over 17 years spent working at the
intersection of Investment Analysis, Personal Finance, and Technology.
Hands-on experience across multiple functions including Index Construction,
Index Maintenance, Asset Allocation, Portfolio Construction, Managing a
team of Digital Relationship Managers, etc
Debentures are popular debt instruments that a company issues to raise capital from the public for conducting its business operations. There are different debentures and you can categorise them on the basis of redeem ability, transferability and convertibility. On basis of convertibility, they are two types i.e., convertible and non convertible debentures. In this article, we will discuss the difference between convertible vs non-convertible debenture.
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Secured NCD – they are backed by the company assets. Also, If a company defaults on payment, investors can claim by liquidating its assets. Unsecured NCD – they are not backed by any collateral. Therefore, in case of default, investors have to wait till they receive payment.
Rate of Interest
They have a lower interest rate than NCD since they can be converted into equity shares
They have a higher interest rate than convertible debentures
Maturity Value
The maturity value of these debentures depends on the company’s stock price at that time. A high stock price will give higher returns, while a low stock price will give lower returns
The maturity value of these debentures remains the same where the investors will receive returns on maturity
Market Conditions
During bad market conditions, the debenture holders have an option to convert into equity shares
During bad market conditions, the debenture holders have no option to convert and also wait till the maturity for redemption
Status
The holders of convertible debentures enjoy the dual status of creditor and also shareholder (owner) of the company.
The holders of non-convertible debentures are only the creditors of the company
Risk
They are less risky since you can convert them into equity shares
They are riskier than convertible debentures as you have to hold until maturity to receive payments.
Trupti Jalan is a Certified Financial Planner. She has diversified and rich experience in personal finance for more than 5 years. Her previous associations were with asset management companies and investment advising firms. She brings in financial markets subject matter expertise to the team and create easy going investment content for the readers.
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