Non-Convertible Debentures (NCDs) and their Valuation Methods
What are Non-Convertible Debentures? Non-Convertible Debentures (NCDs) are essentially a type of debt instrument that offers a fixed return to the investor with a specified repayment timeline and cannot be converted into equity. NCDs greatly benefit investors as they offer assured returns, low risk, and tax benefits for investors. There are two primary subcategories: Secured NCDs Secured NCDs are backed by property or other assets that are used as security for a loan to the corporation (referred to as the “issuer”). Prior to paying bondholders’ interest or other debts, the issuer must repay these loans. Unsecured NCDs Unsecured NCDs are not secured by assets or other forms of collateral. Instead, it is dependent on the issuer’s creditworthiness and capacity to compensate investors in the event of a business operation failure. For instance, a decline in profits would have an impact on the issuer’s capacity to make interest payments on schedule without going into default. Valuati...