A non-convertible debenture, or NCD, is a debt instrument issued by a company to raise money from investors at a fixed or floating interest rate for a fixed period. Unlike a convertible debenture, it cannot be converted into shares, so the investor remains a lender and earns interest and the return of principal, rather than ownership in the company. Public NCD issues are open to retail investors, who apply with a method similar to an IPO using ASBA or UPI, and the NCDs are then listed on the exchange. Interest may be paid monthly, annually or on maturity, and some NCDs are secured by assets of the company while others are unsecured, which affects risk. Credit rating agencies assign a rating to each issue, and a higher rating signals a lower risk of default, though not zero. NCD interest rates are usually higher than bank fixed deposits to compensate for the risk, and the interest is taxable. Liquidity can be limited if trading volumes on the exchange are thin. IPO Bulletin covers upcoming public NCD issues separately from equity IPOs, with the rating, coupon options, tenure and application details.
Example: A finance company issues NCDs with a face value of Rs 1,000 at 9.5 percent a year for three years. An investor who buys 10 NCDs invests Rs 10,000 and receives Rs 950 a year, plus the principal at maturity.