In this article, We will understand debentures, Debentures features, and different types of debentures available for investors. Before getting into this article, I would suggest you check my previous articles on finance topics and I hope they help you to understand other finance topics simply and easily.
A debenture is a low-risk financial instrument issued by borrowers to lenders when providing capital to corporates or individuals. Debentures have a very low financial risk because they enable a secured loan repayment against the borrower’s assets.
Now, I hope you understood what exactly debenture means.
Now, We will look into the features of debentures.
(i) A debenture is nothing but a evidence of debt document issued by the borrower to the lender.
(ii) Interest on the debenture is always payable and fixed irrespective of the company’s financial condition. This implies that, whether the company is in profit or loss, the interest paid by the company to the debenture holder is fixed.
(iii) Debenture Holder doesn’t hold voting rights in the company.
So, these are some basic features of the debentures.
There are different kinds of debentures available in the financial market for lenders.
Generally, Debentures are classified into 8 types based on the objectives and needs.
(i) Registered Debentures:
Registered Debentures are the debentures that are registered with the company. Debenture interest is paid to the only to those lenders whose name is registered with the company.
(ii)Bearer Debentures:
Bearer Debentures are the debentures that are not registered by the company. In this type of debenture, the debenture holders are not registered with the company. The bearers of the debentures are entitled to get the interest on the capital.
(iii)Secured Debentures:
Secured Debentures are secured by the company’s assets. These debenture holders have the right to recover their principal and unpaid interest through the company’s assets.
Generally, these Debentures are considered low-risk debentures.
(iv)Unsecured Debentures:
Secured Debentures are not secured by the company’s assets. These debenture holders have no right to recover their principal and unpaid interest through the company’s assets.
Generally, these Debentureses are considered high-risk debentures.
(v)Redeemable Debentures:
Redeemable Debentures are issued by the organization for a fixed period. After a fixed duration, the Debentures holders are paid the principal amount.
(vI)Non-Redeemable Debentures:
As the name suggests, These debentures cannot be redeemed in a company’s lifetime.
(VII)Convertible Debentures:
These debentures can be converted into shares of the company on completion of a pre-decided period.
(VIII)Non Convertible Debentures:
These debentures cannot be converted into shares of the company.
I conclude the article here, Hope you like the article. Feel free to have a discussion with me in the comment section on debentures and other finance-related topics.
Thank you! Have a nice day :)
