What is an NCD (non-convertible debenture)?

By the Parmbh team · Published 31 Oct 2026

Drafted with AI assistance, then checked and edited by the Parmbh team before publishing.

An NCD, or non-convertible debenture, is a debt security that a company or other body issues to borrow money, and it cannot be converted into the issuer's shares. When you hold one, you are lending to the issuer: it agrees to pay interest on the terms of the issue and to repay the face value at maturity, but both depend on the issuer being able to pay, so neither is guaranteed. This post starts from SEBI's definitions, then covers issuers, security, how NCDs are issued and where to find their terms.

What does "non-convertible" mean?

It means the debenture stays a debt for its whole life. A convertible debenture can turn into shares of the issuer at some point. A non-convertible one can't: it is repaid in money at maturity, or earlier if its terms allow.

SEBI's Issue and Listing of Non-Convertible Securities Regulations, 2021 (the NCS Regulations, amended up to 21 January 2026) set the rules for listed NCDs. They define debt securities as "non-convertible debt securities with a fixed maturity period which create or acknowledge indebtedness". That includes debentures, bonds and similar securities, whether or not they carry a charge on the issuer's assets. Bonds issued by the Government are left out, as are security receipts, securitised debt and money market instruments regulated by the RBI.

So an NCD is a debt, not a share in the business. Its payments are set by its terms: they don't go up when the company does well, and they are owed whether or not it makes a profit. Whether they are actually paid is a separate question, and that is credit risk.

People often ask whether an NCD is different from a bond. In everyday use, an NCD is a kind of bond issued by a company or similar body. Our post on what a bond is covers bonds in general, including government securities.

Who can issue an NCD?

The NCS Regulations define an issuer as a company, a body corporate, a statutory corporation, a multilateral institution, or a trust registered with SEBI as a Real Estate Investment Trust (REIT) or an Infrastructure Investment Trust (InvIT). It must be allowed to issue non-convertible securities under the relevant laws and be seeking to list them on a recognised stock exchange.

That covers private and public sector companies, finance companies such as NBFCs, and those two kinds of trust. The issuer is the one that owes every payment.

Say two NCDs have the same coupon and the same maturity date but different issuers. They are not the same risk: each depends on its own issuer's ability to pay.

What makes an NCD secured or unsecured?

A secured NCD is backed by a charge on assets. The NCS Regulations define secured debt securities as those secured by a charge on the properties or assets of the issuer, or of its subsidiaries, holding company or associate companies, with a value sufficient to repay the principal and pay the interest.

Regulation 23(5) requires the issuer to keep secured debt securities backed by a security cover of 100% or more, as the offer document or the debenture trust deed sets out, enough to discharge the principal and interest at all times. Under regulation 24(3), the debenture trustee monitors that security cover.

An unsecured NCD has no such charge. If the issuer defaults, its holders have no specific assets set aside for them. NCDs are also senior or subordinated, and senior ones are repaid before subordinated ones. Our section on secured, unsecured and seniority covers both.

Security is not a promise of full recovery, and SEBI's rules say so. Among the risk factors an issue document should carry where they apply, Schedule I of the NCS Regulations lists one stating that, although the debenture is secured for the full principal and interest and the trustee monitors this, recovering the full amount depends on market conditions when the security is enforced.

Picture a secured NCD backed by a charge on a building. If the issuer defaults and the building has to be sold, the price it fetches then decides how much bondholders get back.

How is an NCD issued?

There are two routes. A public issue is an offer or invitation to the public to subscribe, and its offer document is a prospectus. A private placement is an offer to a select group of persons, not to the public, that meets the conditions in section 42 of the Companies Act, 2013. Its offer document is a placement memorandum filed with the stock exchanges.

The NCS Regulations apply to NCDs issued to the public and to privately placed ones that are proposed to be listed (regulation 3). For both, Chapter II sets general conditions: in-principle approval from a stock exchange, a depository arrangement for demat holding, a debenture trustee and at least one credit rating. The issuer must also create a recovery expense fund with the designated stock exchange (regulation 11).

Can you still buy an NCD if you missed its issue? Once listed, an NCD can be bought and sold on the stock exchange, and such trades are cleared and settled through the exchange's clearing corporation, subject to conditions SEBI sets (regulation 21). Listing does not mean a buyer will always be there. Schedule I names "limited or sporadic trading" on the stock exchanges among the risk factors an issuer should disclose where it applies.

What does an NCD's summary of terms show?

Schedule I of the NCS Regulations lists a "Summary of terms" that the issue document must include. Among its lines:

• Nature and seniority: secured or unsecured, senior or subordinated.
• Listing and rating: the stock exchange(s) where it will be listed, and the instrument's rating.
• Coupon: the rate, whether it is fixed or floating (and how a floating rate resets), how often it is paid, the payment dates and the day count basis.
• Tenor and redemption: the redemption date and amount, any premium or discount, and any put or call dates.
• Face value, issue price and minimum application.
• Record date, events of default, the debenture trustee's role and the risk factors.

Regulation 23(7) requires the issuer to fix the record date 15 days before an interest payment or repayment is due.

Hypothetical example, not a real bond and not a forecast. Take an NCD with a face value of ₹1,000, a fixed coupon of 9% p.a. paid once a year and three years left to maturity. The bond pays ₹90 a year in interest, before tax, if the issuer pays, and is due to repay ₹1,000 on the redemption date. If it is bought on the exchange at ₹1,010, its interest is still worked out on the ₹1,000 face value.

When an NCD's price is not the same as its face value, its yield is not the same as its coupon either. Our explainer on coupon and yield shows how the two differ.

Interest on an NCD may be taxed, and tax may be deducted at source.

Tax rules change, so check with a tax adviser.

What does the rating tell you?

Regulation 10 requires the issuer to get a rating from at least one credit rating agency registered with SEBI and to disclose it in the offer document. If it got ratings from more than one agency, all of them have to be disclosed, including any it did not accept. Say an issuer approached two agencies and accepted only one of the ratings: the offer document still has to show both.

A rating is the agency's opinion of the issuer's ability to pay on time, and it can change over the NCD's life. SEBI has also introduced a colour-coded Credit Risk-o-Meter for debt securities, which our post on SEBI's Credit Risk-o-Meter explains.

What can go wrong with an NCD?

NCDs carry risks, and you can lose money. The issuer may delay or miss interest or repayment (credit risk). There may be no buyer when you want to sell before maturity (liquidity risk). And the price can fall when market interest rates rise (interest-rate risk).

A frequent question: if an NCD is secured, rated and has a trustee, can it still go wrong? Yes. The trustee monitors the security, the rating is an opinion, and the security may not cover the full amount when it is enforced. None of them promises repayment. The full list is in our section on risks to check.

When reading an NCD's details, it helps to look at the issuer, the security and seniority, and the rating before looking at the yield. A higher yield usually means the market sees more risk.

Where can I read more on Parmbh?

Our Learn page covers the basics of bonds and NCDs. The bond list shows some key terms of each bond; the full terms are in its issue document. You can ask Parmbh AI what any term in a summary of terms means.

We explain bonds; we don't tell anyone which one to buy.

Sources

• Securities and Exchange Board of India, Securities and Exchange Board of India (Issue and Listing of Non-Convertible Securities) Regulations 2021 [Last Amended as on January 21, 2026], 21 Jan 2026 (checked 24 Oct 2026)

This post is for learning only. It is not investment advice or a recommendation to buy, sell or hold any bond, and it does not take your circumstances into account. Bonds carry risks, including the risk that the issuer does not pay on time or at all. Yields are not guaranteed, and figures are as of the dates shown. Parmbh earns a commission from Aspero or our partners when you invest through us. It is included in the price or terms you get from Aspero or the partner. We never hold your money. Before you invest, read the issuer’s documents and speak to a SEBI-registered adviser.

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