Difference between Convertible and Non-convertible debentures

Debentures are referred to as a type of long term debt instrument that is not backed by any collateral. In other words, debentures are not secured or lack any kind of security. Along with bonds, debentures are one of the most popular debt instruments.

There are different categories of debentures based on properties such as convertibility, redeemability, transferability, etc.

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Based on convertibility, there are two kinds of debentures which are convertible and non-convertible debentures.

Convertible debentures are debentures that can be converted into equity of the company. In case of non-convertible debentures, they cannot be converted into equity shares of the company.

Let us look at some of the points of difference between convertible and non-convertible debentures

Convertible Debentures
Non-convertible debentures
Definition
Convertible debentures are those type of debentures that can be converted into equity shares of the company Non-convertible debentures are those debentures that cannot be converted into equity shares of the company
Rate of Interest
Convertible debentures have low rate of interest Non-convertible debentures have high rate of interest
Value at maturity
The value of maturity of convertible debentures is dependent on the stock price of the company at that time, which means a high stock price will give higher returns while a low stock price will give low returns The value of non-convertible debentures is fixed and hence they will receive fixed returns on maturity
Effect of market conditions
During bad market conditions, the holders of the convertible debentures have the option to convert into equity shares During bad market conditions, the non-convertible debentures cannot be converted and can only be redeemed at maturity
Status
Holders of the convertible debentures enjoy dual status as they can be creditor as well as owner of the company Holders of the non-convertible debentures are only creditors of the company
Risk factor
Convertible debentures are less risky Non-convertible debentures are riskier compared to convertible debentures

This article was all about the topic of Difference between Convertible debentures and Non-convertible Debentures, which is an important topic of study for Commerce students. For more such interesting articles, stay tuned to BYJU’S.

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