Non-Convertible Debentures (NCDs) and bonds are financial instruments issued by companies, governments, or other entities to raise funds from the capital market. Here’s a brief overview of each:
Non-Convertible Debentures (NCDs):
NCDs are debt securities issued by companies to raise capital. They offer a fixed interest rate over a specified period, which is known as the coupon rate. Unlike convertible debentures, NCDs cannot be converted into company shares. Investors receive interest payments at regular intervals and the principal amount back at maturity. NCDs are typically considered less risky compared to equities and can provide a steady income stream for investors seeking stable returns.
Bonds:
Bonds are debt instruments issued by governments, municipalities, or corporations to borrow money from investors. Bonds can be either convertible or non-convertible. Convertible bonds allow the holder to convert them into company shares at a predetermined ratio. Non-convertible bonds, on the other hand, do not offer conversion to equity. Bonds pay fixed interest, known as the coupon, to investors, and the principal is repaid at maturity. Government bonds are generally considered less risky due to the backing of the government, while corporate bonds carry varying levels of risk based on the issuer’s creditworthiness.
Both NCDs and bonds play a vital role in diversifying investment portfolios and providing fixed-income options for investors. It’s important for investors to consider factors like credit rating, interest rate, issuer reputation, and market conditions before investing in these instruments.