Convertibles 

Convertibles 

Subject: Economy

Section: Monetary Policy

Context:

Start-ups will now get five more years to convert convertible notes into equity shares under the Foreign Exchange Management (Non-debt Instruments or NDI) Rules, 2019.

Convertible vs Non Convertible Debentures:

Convertible debentures are debentures that can be converted into equity of the company and have a low rate of interest. 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.

Non-convertible debentures cannot be converted into equity shares of the company and offer a high rate of interest. The value of non-convertible debentures is fixed and hence they will receive fixed returns on maturity.