What is an NCD? Non-convertible debentures explained

What is an NCD? A non-convertible debenture is a debt instrument a company issues to raise money, paying a fixed rate of interest and repaying the principal on a set maturity date. The "non-convertible" part is the key distinction: unlike a convertible debenture, an NCD can never be turned into equity shares. If you hold an NCD, you are a lender to the company, not a shareholder. This guide explains what an NCD is, how it is regulated, and what the filings around it disclose. It is not investment advice.

How does an NCD work?

A company that needs debt capital issues NCDs to investors. In return, it promises two things: a periodic interest payment, called the coupon, and repayment of the face value when the debenture matures. The tenure is fixed in advance, often three to ten years. Because the terms are set at issue, an NCD behaves like a fixed-income instrument rather than an ownership stake whose value floats with company performance.

The framework that governs public issues and listing of NCDs in India is the SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021, which consolidated the earlier debt and non-convertible rules into one rulebook.

Are NCDs secured or unsecured?

Both exist. A secured NCD is backed by a charge on specific assets of the issuer, which holders can claim against if the company defaults. SEBI requires secured debt securities to maintain a security cover of 100 percent of the outstanding amount. An unsecured NCD has no such backing and ranks lower in a default. The offer document must state which category the instrument falls in, so the distinction is disclosed, not hidden.

What protections do NCD holders have?

Two structural safeguards are built into the rules:

• A mandatory credit rating. The issuer must obtain a rating from at least one registered credit rating agency and disclose it. The rating is the agency's opinion on how likely the issuer is to pay on time. Read what a credit rating is for how the AAA-to-D scale works.
• A debenture trustee. For both secured and unsecured debt securities, the issuer must appoint a debenture trustee whose job is to protect holders' interests and enforce the terms of the trust deed.

These are disclosure and governance requirements. Neither is a guarantee of repayment.

How is an NCD different from a bond or a share?

An NCD is a type of corporate bond, so the terms overlap. The sharpest contrasts are with equity and with government debt. A share gives ownership and a variable, uncertain return; an NCD gives a lender's fixed claim. A government bond carries sovereign backing; a corporate NCD carries the issuer's credit risk, which is exactly why the rating and trustee exist. For the full breakdown, see NCD vs bond.

NCDs sit alongside other listed instruments that disclose under SEBI's rules, including REITs and their infrastructure counterparts. Flock reports public regulatory filings and shareholding data with each claim sourced and dated. What any of it means for your money is your call to make.