DEBENTURE

By :–
Benson Oommen
DEFINITION

 According to law, debenture is a document that either

creates a debt or acknowledges it.
 Long term capital investment to borrow money by big
companies.
 Includes debenture stock, bonds and other security of
company.
FEATURES

 Freely transferable by the debenture holder.

 No voting rights to holders.

 Fixed interest paid to holders charge against profit in the

company's financial statements.
 Interest is tax deductible.

 Have a specified period of redemption

 May be secured or unsecured.

Contd….
CONTD…

 Call and Put Option.

 Debenture Indenture.

 Maturity after specified period.

 Convertibility.

 Credit Ratings for debenture.

TYPES OF DEBENTURES
FROM POINT OF CONVERSION
Convertible debentures Non Convertible debentures

 Convertible bonds.  Regular debentures.

 Bonds can be converted  Cannot be converted into
to equity shares after equity shares.
predetermined period of  Higher interest rates
time.
 lower interest rates .

 Advantageous to buyer.
FROM POINT OF REDEMPTION

Redeemable debentures Irredeemable debentures

 Repaid at the end of  Not redeemable during

specified period or within life of company.
the period at company’s  Repayable either at
option . liquidation or if company
fails to pay interest.
FROM POINT OF SECURITY
Secured /Mortgaged Debenture Secured /Simple Debenture

 Issued with charge on  No charge on company’s

immovable assets of assets for interest and
company. repayment.
 Charge fixed/floating/on  But being creditors ,have
particular assets. general charge on assets
 If fails to pay interest ,can
sell assets to satisfy
claims.
FROM POINT OF REGISTRATION
Registered Debenture Bearer Debenture

 Registered with issuing  Negotiable instruments .

company.  Payable to bearer .
 Transfer requires regular  Transferable by delivery
transfer deed. only.
 Interest to be paid to  Interest paid to bearer of
name with whom debenture.
debenture is registered.
ADVANTAGES OF DEBENTURES

To company
> cheapest source of long term finance.
> does not dilute control.
> enables advantage of trading on equity.
> flexibility in capital structure.
> holders does not participate in surplus profits.
> protection against inflation.

Contd…
CONTD…

To holders
> provides fixed ,regular & stable source income.
> investment safe and secured.
> definite maturity period.
interests protected by indenture.
DISADVANTAGES OF DEBENTURES

To company
> risky .
> raises cost of equity of company.
> involves restrictions .
> costly if rate of inflation low.
> not stable source.

Contd…
CONTD…

To holders
> no voting rights.
> no claim on surplus profits.
> fully taxable.
> loose interest charges, if inflation increases.
> vulnerable with change in interest rates.
DISTINGUISH BETWEEN EQUITY
SHARES AND DEBENTURES
THANKING
YOU