Debentures are divided into different categories on the basis of two broad parameters viz. convertibility of the instrument and the security of the instrument. Debentures can be classified on the basis of convertibility into:

Non Convertible Debentures (NCD)

These instruments retain the debt character and cannot be converted in to equity shares and are a pure debt instrument.

Partly Convertible Debentures (PCD)

A part of these instruments are converted into Equity shares in the future at notice of the issuer. The issuer decides the ratio for conversion. This is normally decided at the time of subscription.

Fully convertible Debentures (FCD)

These are fully convertible into Equity shares at the issuer's notice. The ratio of conversion is decided by the issuer. Upon conversion the investors enjoy the same status as ordinary shareholders of the company.

Optionally Convertible Debentures (OCD)

The investor has the option to either convert these debentures into shares at price decided by the issuer/agreed upon at the time of issue.

On basis of Security, debentures are classified into:

Secured Debentures

These instruments are secured by a charge on the fixed assets of the issuer company. So if the issuer fails on payment of either the principal or interest amount, the company’s assets can be sold to repay the liability to the investors

Unsecured Debentures

These instrument are unsecured in the sense that if the issuer defaults on payment of the interest or principal amount, the investor has to be along with other unsecured creditors of the company.