DIT SCHOOL OF BUSINESS

PRESENTATION
ON
DEBENTURES

PRESENTED BY:-
Saju Thomas
Abhishek Singh
Sunil Sharma
 MEANING:-
• Debenture is a debt security issued by a
company (called the Issuer), which offers to
pay interest in lieu of the money borrowed for
a certain period. In essence it represents a loan
taken by the issuer who pays an agreed rate of
interest during the lifetime of the instrument
and repays the principal normally, unless
otherwise agreed, on maturity. 
 DEBENTURES FEATURES :-
• A debenture is a promissory note , issued by a
company
• It represent creditor ship securities and Debenture
holders are long term creditors of the company
• As a secured instrument it is a promise to pay interest
and repay principle at stipulated times.
• In contrast to equity capital which is a variable
income (dividend)security , the debentures /notes are
fixed income (interest)security.
 VARIOUS TERMS IN DEBENTUERS
• TRUST INDENTURE
• INTEREST
• MATURITY
• DEBENTURE REDEMPTION RESERVE
• CALL & PUT PROVISION
• SECURITY
• CONVERTIBILITY
• CREDIT RATING
• CLAIM ON INCOME & ASSETS
 Trust indenture:-
• When a debenture is sold to investing public ,a
trustee is appointed through an indenture /trust
deed.
• Trustee are usually a financial institution
/bank/insurance company / firm of attorneys.
• The trust deed provides the specific terms of
agreement such as description of debentures ,
rights of debenture-holders , rights of the
issuing company & responsibilities of the
trustee.
 Interest:-
• The debentures carry a fixed (coupon) rate of
interest , the payment of which is legally
binding/enforceable .
• The debenture interest is tax deductable and is
payable annually /semi annually/quarterly
• MATURITY:-
• It indicates the length of the time for redemption of
the par value. A company can choose the maturity
period , though the redemption period for non
convertible debenture is typically 7-10 years .
 Debenture redemption reserve(DRR)
• A DRR has to be created for the redemption of all
debentures with a maturity period exceeding 18 months
equivalent to at least 50 % of the amount of
issue/redemption before commencement of redemption.
• Call & put provision :-
• The call/buy-back provision provides an option to the
issuing company to redeem the debenture at a specified
price before maturity .
• The call price may be more than the par/face value by
usually 5 % , the difference being call premium . The put
option is a right to the debenture – holder to seek
redemption at a specified time at pre-determined prices.
Security:
Debentures are generally secured by a charge on the present and
future immovable assets of the company by way of an equitable
mortgage.

Convertibility:
Apart from pure non-convertible debentures (NVD), debentures can
also be converted into equity share at the option of the debenture-
holders. The conversion ration equity share at the option of the
debenture-holders. The conversion ration and the period during which
conversion can be affected are specified at the time of the issue of the
debenture itself.
Credit Rating:
To ensure timely payment of interest and redemption of
principal by a borrower all debentures must be
compulsorily rated by one or more of the four credit rating
agencies, namely, Crisil, Icra, Care .

Claim on Income and Assets:

The payment of interest and repayment of principal in a
contractual obligation enforceable by law. The claim of
debenture-holders on income and assets ranks pari passu
with other secured debt and higher that of shareholders-
preference as well as equity.
TYPES OF DEBENTURES
· 
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, his 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
 Advantages
1.Control of company is not surrendered to debenture
holders because they do not have any voting rights.

2. Trading on equity is possible as debenture holders get a

lower rate of return than the earnings of the company.

3. Interest on debenture is an allowable expenditure under

income tax act, hence incidence of tax on the company is
decreased
.
4. Debenture can be redeemed when company has surplus
funds.
 Disadvantages
1. Cost of raising capital through debentures is high of high
stamps duty.

2. Common people cannot buy debenture as they are of high

denominations.

.
THANK YOU