Non-Convertible Debentures: A Beginner's Guide

Because it provides a fixed and guaranteed return on investment, a bank fixed deposit is a safe and profitable investment option. Banks, on the other hand, offer low rates of interest, making them a poor investment alternative. As a result, low-risk investors seeking a guaranteed return at a higher rate might choose the debenture investment product. A debenture is a sort of debt instrument that is not secured by the issuing financial institution's tangible assets or collateral. Debentures are the most frequent type of long-term debt that a firm can take out. These loans have a fixed rate of interest and repayment period.

Convertible and non-convertible debentures are the two types of debentures.

Convertible Debentures are those that, after a certain length of time, can be converted into equity shares of the issuing business. These bonds are appealing to investors because of their potential to convert, but they pay a lower interest rate.

Debentures that are not convertible:

This financial product cannot be converted into equity shares, and when the maturity period ends, the debenture holder receives the principal amount plus any accrued interest.

There are two sorts of NCDs: secured and unsecured. Secured redeemable non-convertible debentures are backed by the debenture issuing business's assets, and if the company defaults on payment, the investor can liquidate the assets to recover the money.

Non-Convertible Debentures Have Many Advantages

It has a high rate of return and can be sold on the stock exchange, even if it cannot be converted into equity shares at a later date. So, unlike a bank fixed deposit, if you choose to liquidate the debenture, you can do so and get your money back. This is why non-convertible debentures appear to be a good investment option, and individuals have been buying them in growing numbers recently.

The Risks of Non-Convertible Debentures

They do not provide any form of ownership in the company, such as shares. In addition, if sold before the maturity period, they do not provide advantageous returns during a recession. Last but not least, NCD returns are taxable, and debenture holders must pay taxes based on their income tax bracket. This is also true in the case of a sale during the pre-maturity period.

Why Should You Invest in an NCD?

Many investors think that investing in NCDs is a good idea. People are becoming more interested in NCDs because they do not want to be restricted to fixed bank deposits. These debenture markets are growing, and many corporations issue debentures as a means of raising money on a regular basis.

Non-convertible debentures are therefore a wise and profitable financial product. Individuals seeking greater and more secure returns might consider investing in NCDs. To protect the security of one's investment, one must conduct a thorough research about the issuer's overall creditworthiness and reputation before investing in an NCD.