CCD and Convertible Note Valuation in India
By CA V. Viswanathan, FCA, ACS, CFE, IBBI Registered Valuer (IBBI/RV/03/2019/12333). V Viswanathan & Associates, Chartered Accountants, FRN 013713S. Law stated as at 13 November 2026.
A CCD or convertible note valuation fixes the terms on which money lent to a company today turns into equity shares later. Compulsorily convertible debentures offered on a preferential basis need a registered valuer's report under Rule 13 of the Companies (Share Capital and Debentures) Rules, 2014. A convertible note can be issued only by a DPIIT-recognised start-up, for ₹25 lakh or more in a single tranche, and must convert or be repaid within ten years. Where the investor is a non-resident, FEMA conditions apply to both. CA V. Viswanathan, IBBI Registered Valuer (IBBI/RV/03/2019/12333), prepares these valuations and serves clients across India from Chennai.
What are CCDs and convertible notes?
A compulsorily convertible debenture (CCD) is a debenture that must convert into equity shares on a fixed date or event. Until then it is debt: it can carry interest and ranks ahead of shareholders. A convertible note is a simpler instrument that only a start-up company can issue. It records money received as a debt that is either repaid or converted into equity shares within ten years, usually at a discount to the price of the next funding round.
Both postpone the question of price. That is their attraction, and it is also why they need a valuation: at issue, to show that the terms are fair and lawful, and at conversion, to fix how many shares the holder receives.
Which rules apply to each instrument?
| Point | CCDs | Convertible notes |
|---|---|---|
| Who can issue | Any company | A start-up company recognised by DPIIT |
| Minimum amount | None | ₹25 lakh or more from a person in a single tranche |
| Conversion period | Within ten years, to stay outside the definition of deposit | Converted or repaid within ten years of issue |
| Deposit rules | Rule 2(1)(c)(ix), Companies (Acceptance of Deposits) Rules, 2014 | Rule 2(1)(c)(xvii) of the same Rules |
| Approval and procedure | Special resolution for debentures convertible into shares (section 71(1), Companies Act, 2013) | Private placement procedure under section 42 |
| Valuation under company law | Registered valuer's report under Rule 13 when offered on a preferential basis | No report is prescribed for the note itself; the shares are valued at conversion |
| Foreign investor | Equity instrument if fully and mandatorily convertible; price or formula fixed upfront under Rule 21 | Permitted for ₹25 lakh or more in a single tranche; reported in Form CN within 30 days. Shares issued on conversion must comply with entry route, sectoral caps and the pricing guidelines |
| Income tax | Rule 57, Sl. No. 5: open-market price | Rule 57, Sl. No. 5: open-market price |
Sources: Companies (Acceptance of Deposits) Rules, 2014, as amended in 2016 and on 7 September 2020; Rule 13, Companies (Share Capital and Debentures) Rules, 2014; Master Direction on Foreign Investment in India, paragraph 6.14; Rule 57, Income-tax Rules, 2026.
When is a valuation required?
- At issue of CCDs: Rule 13 treats securities convertible into equity as "shares or other securities", so the price is determined on a registered valuer's report. The company chooses, and discloses, whether the conversion price is fixed now or on a later report (Rule 13(2)(h)).
- CCDs held by a non-resident: the conversion price or formula is fixed upfront, and the price at conversion cannot be lower than the fair value determined when the CCDs were issued (Rule 21).
- At conversion of a note: the cap and discount in the note give a formula, and the round price or a valuation supplies the input. Where the holder is a non-resident, the issue of equity shares against the note has to comply with the pricing guidelines (Master Direction, paragraph 6.14), so a fair value certificate is obtained at conversion and the shares cannot be issued below that value.
- For the accounts: under Ind AS the instrument is classified as equity, liability or a compound of the two, and any liability or derivative component is measured at fair value.
- For income tax: if a debenture or note is transferred, its fair market value is the open-market price under Rule 57, on a merchant banker's or accountant's report.
Who can sign a CCD or convertible note valuation?
| Purpose | Registered Valuer | Merchant Banker | Chartered Accountant |
|---|---|---|---|
| Companies Act: issue and conversion price (Rule 13) | Yes. Required | Not sufficient | Not sufficient unless also a registered valuer |
| FEMA: fair value for a non-resident holder (Rule 21) | Not named by the rule | Yes, if SEBI-registered | Yes; a practising cost accountant also qualifies |
| Income tax: unquoted debentures and notes (Rule 57, Sl. No. 5) | Not named by the rule | Yes | Yes |
CA V. Viswanathan is a chartered accountant and an IBBI Registered Valuer for securities or financial assets (IBBI/RV/03/2019/12333). His registration can be checked on the IBBI register of registered valuers.
How are these instruments valued?
- Equity value first: the company is valued, normally by discounted cash flow with a market cross-check, to give a value per share today.
- Debt features: the coupon on a CCD and its priority on winding up are valued as cash flows, discounted at a rate for the company's credit risk.
- Conversion feature: a fixed ratio is valued as the shares to be received; a variable ratio with a cap or discount is valued across scenarios for the next round, or with an option-pricing model.
- Probability of conversion and timing: a note that converts only on a qualified financing is weighted for the chance and date of that financing.
Worked example: convertible note with a cap and a discount
Illustrative figures, not a real client. A DPIIT-recognised start-up with 10,00,000 shares issues a convertible note for ₹50,00,000. The note converts in the next funding round at the lower of a 20% discount to the round price and the price implied by a valuation cap of ₹10,00,00,000. The next round is priced at a pre-money valuation of ₹15,00,00,000.
- Round price: ₹15,00,00,000 ÷ 10,00,000 shares = ₹150 a share.
- Discount price: ₹150 × (1 − 20%) = ₹120.
- Cap price: ₹10,00,00,000 ÷ 10,00,000 shares = ₹100.
- Conversion price: the lower of ₹120 and ₹100 = ₹100.
- Shares issued to the note holder: ₹50,00,000 ÷ ₹100 = 50,000.
- At the round price those shares are worth 50,000 × ₹150 = ₹75,00,000, a gain of ₹25,00,000 for taking the early risk.
What documents are needed?
- Draft debenture subscription agreement or convertible note, with the conversion terms
- Audited financial statements for three years, or since incorporation, and management accounts to the valuation date
- Projections for five years with assumptions
- Capitalisation table on a fully diluted basis
- DPIIT recognition certificate, for a convertible note
- For a foreign investor: investor details, sector and entry route
What is the process and how long does it take?
- Scoping call: instrument, investor and the laws that apply.
- Engagement letter with a fixed fee and document list.
- Valuation of the equity and of the instrument's terms.
- Draft shared with management for factual confirmation.
- Signed report with UDIN, and the FEMA certificate where a non-resident is involved.
Reports are usually issued within 5–7 working days of complete information, and within 15 working days for complex cases. The clock starts when the last document is received, not on the date of engagement.
What does a CCD or convertible note valuation cost?
Our fee for a CCD or convertible note valuation starts from ₹35,000 + 18% GST. The figure depends on the number of instruments or companies to be valued, whether projections exist, and how many laws the same transaction has to satisfy. We quote a fixed fee after a first call and before any work starts. Statutory filing fees, stamp duty and any merchant banker's fee are separate.
Related valuations
Convertible preference shares follow similar rules: see CCPS valuation in India. The certificate the bank needs for a foreign investor is in FEMA valuation certificate for FC-GPR and FC-TRS.
Every valuation report we issue, with the law behind it and the person who must sign it, is listed on our valuation services page.
About V Viswanathan & Associates
- Chartered Accountants, FRN 013713S— Practising since 2012 from G-131, Spencer Plaza, Anna Salai, Chennai.
- IBBI Registered Valuer— Securities or financial assets, CA V. Viswanathan (IBBI/RV/03/2019/12333), registered 30 September 2019.
- FCA, ACS, CFE— Member of ICAI since 2012 and Fellow since 2017; company law, tax and forensic accounting in one practice.
- Across India— Serves clients across India from Chennai through video consultations and digitally signed reports.
Frequently Asked Questions
Is a valuation report required for issuing CCDs?
Yes, when an unlisted company offers them on a preferential basis. Rule 13 of the Companies (Share Capital and Debentures) Rules, 2014 covers securities convertible into equity, and the price is determined on a registered valuer's report.
Who can issue a convertible note in India?
A start-up company recognised by DPIIT. The note must be for ₹25 lakh or more from a person in a single tranche and must be converted into equity shares or repaid within ten years of issue.
Are CCDs treated as deposits?
No, where they are compulsorily convertible into shares within ten years. Rule 2(1)(c)(ix) of the Companies (Acceptance of Deposits) Rules, 2014 excludes such debentures from the definition of deposit.
Can a foreign investor subscribe to CCDs or convertible notes?
Yes. Fully and mandatorily convertible debentures are equity instruments under FEMA and follow Rule 21 pricing. A foreign investor may buy convertible notes of a start-up for ₹25 lakh or more in a single tranche, reported in Form CN within 30 days; the shares issued on conversion must comply with the pricing guidelines.
What is the difference between a valuation cap and a discount?
A discount gives the note holder shares at a percentage below the next round price. A cap sets the highest company valuation at which the note converts. Where both apply, the holder converts at whichever gives the lower price per share.
Can the conversion price of CCDs be fixed later?
Under Rule 13(2)(h) the company may fix it upfront or on a later registered valuer's report. Where the holder is a non-resident, the price or formula must be fixed upfront and cannot go below fair value at issue.
How are CCDs valued for income tax?
As unquoted securities other than equity shares: at the price they would fetch in the open market on the valuation date, on a merchant banker's or accountant's report (Rule 57, Sl. No. 5).
How long does the valuation take?
Usually 5–7 working days from complete information, and up to 15 working days where the conversion terms need scenario or option-pricing analysis.
Related Guides
FEMA Valuation Certificate for FC-GPR and FC-TRS
The certificate a bank needs before a foreign investment is reported.
Law stated as at 13 November 2026. Official sources: Companies Act, 2013 and rules (India Code), Master Direction on Foreign Investment in India (RBI), Rule 57, Income-tax Rules, 2026 (Income Tax Department), IBBI register of registered valuers. This page is general information, not advice on a specific transaction.
CCD and Convertible Note Valuation
Send us the term sheet and we will tell you which reports the instrument needs.