What is NCD?

A debenture is basically an secure or unsecured loan to a corporation. There is a provision to exchange this debt for corporate stock. Non-convertible debentures(NCD) do not have this provision

NCD is a type of debt instrument that is issued for a fixed maturity and no part of the debenture is convertible into equity. The face value of the debenture is redeemed in one installment (a bullet payment) or in multiple installments . Generally the redemption periods are from 5 years to 10 years and the interest is paid quarterly or half yearly. and interest is taxable in the hands of the investor.

The safety aspect is what sets NCD apart . In legal terms, they constitute direct and secured obligations of the company. and shall rank pari passu and with all their other existing direct and secured borrowings. Consequently, the claims of NCD holders will be superior to the claims of other unsecured creditors and other investors. That means,if the company were to wind up, NCD holders will rank above all unsecured creditors and other investors.

To contrast with FD, a company FD is an altogether unsecured debt. In other words, if the company were to default, the FD holders do not have a legal right on the assets of the company