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Equity IPO vs Debt IPO (NCD IPO)

Published on Tuesday, September 11, 2018 by Team | Modified on Thursday, May 23, 2019

Companies need finances to run their operations, pay existing debts or to fuel their expansion activities. IPO (Initial Public Offerings) are a popular way for unlisted companies (those whose stocks are not listed in stock exchanges) to raise capital for their business needs.

A company can raise capital in two ways: Equity and Debt. In equity, it raises capital by inviting investors to be the shareholders of the company. In debt, it borrows from investors with the assurance of a predetermined rate of return.

What is an Equity IPO?

Equity IPO's are financial instruments issued by a private limited or an unlisted company to raise capital via equity. The company invite investors to contribute capital and become a shareholder in the company. After the successful issuance of the IPO, the company gets listed in an exchange and its stocks are available for trading.

Equity IPOs are of two types based on their issuing price process-

  • Fixed Price Issue: In a fixed price IPO issue the price per share is fixed by the company before the issuance.
  • Book Building Issue: In a book building issue, the company gives a price range and the investors need to bid within that price range. Depending on the response to the issue, the company selects a price after completion of the bidding process and shares are allotted accordingly.

What is an NCD IPO?

NCDs are fixed-term financial instruments issued by a company to raise capital via debt. The company invites investors to lend it money for a specified period to fund its business requirements. In return, investors are promised a predetermined rate of return.

NCD IPOs are of two types:

  • Secured NCDs: These are backed by assets of the company. In the event of a company's failure to pay its borrowers, the assets can be liquidated, and the proceeds are paid to borrowers.
  • Unsecured NCDs: These are not backed by any company assets and therefore are riskier. However, the rate of return is high on unsecured NCDs.

Difference between Equity IPO and Debt IPO

Equity IPO

Debt IPO

Capital raised by sharing ownership with the investors.

Capital raised by borrowing from the investors.

The investor is a shareholder.

The investor is a lender.

No assured returns.

Assured returns at a fixed rate.

The risk is high, Reward potential is high.

Moderate risk, moderate returns.

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5. prem sagar   I Like It. |Report Abuse|  Link|December 18, 2023 7:52:31 PMReply
Short and nicely explained. Taxation part for the interest and gain/loss in case of its sale before maturity also be briefly clarified vis-a-vis the shares sold, short term and long term both.

4. Suresh Chauhan   I Like It. |Report Abuse|  Link|February 27, 2022 3:16:08 PMReply
Very nicely explained. is my favourite site to update my knowledge for investment purpose.
3. BRAHMAIAH VARAGANI   I Like It. |Report Abuse|  Link|July 12, 2020 4:37:55 PMReply
Clearly understanding
2. janardan panday   I Like It. |Report Abuse|  Link|October 7, 2019 8:33:57 AMReply
Nicely explained to understand but it would have been more clear if it would have been clearly mentioned that Debt IPO and NCD is the synonymous and same,As in ASBA it is mentioned as Debt IPO and commonly known as NCD
1. Piyusha   I Like It. |Report Abuse|  Link|October 9, 2018 12:12:51 PMReply
Very nice and easy to understand article