DEBENTURE

MEANING

debenture is a medium to long-term

debt Instrument used by large companies
to borrow money, at a fixed rate of interest.
A debentures is a long-term debt instrument or
security.
 It is also known as BOND.
Bond issued by government do not have any
risk of default.
A company in India can issue secured or
unsecured debentures.
In case of debentures, the rate of debentures
are fixed and known to investors
 FEATURES OF DEBENTURES
 Maturity period: Debentures consist of long-term fixed maturity
period. Normally, debentures consist of 10–20 years maturity
period and are repayable with the principle investment at the end
of the maturity period.
 Residual claims in income: Debenture holders are eligible to get
fixed rate of interest at every end of the accounting period.
Debenture holders have priority of claim in income of the company
over equity and preference shareholders.
 Residual claims on asset: Debenture holders have priority of claims
on Assets of the company over equity and preference shareholders.
The Debenture holders may have either specific change on the
Assets or floating change of the assets of the company. Specific
change of Debenture holders are treated as secured creditors and
floating change of Debenture holders are treated as unsecured
creditors.
No voting rights: Debenture holders are
considered as creditors of the company. Hence
they have no voting rights. Debenture holders
cannot have the control over the performance
of the business concern.
 Fixed rate of interest: Debentures yield fixed
rate of interest till the maturity period. Hence
the business will not affect the yield of the
debenture
 TYPES OF DEBENTURES
 Non Convertible Debentures (NCD):
These instruments retain the debt character and
can not be converted into equity shares.

 Partly Convertible Debentures (PCD):

A part of these instruments are converted into
Equity shares in the future at notice of the issuer. The
issuer decides the ratio for conversion. This is
normally decided at the time of subscription.
 Fully convertible Debentures (FCD):
These are fully convertible into Equity shares at
the issuer's notice. The ratio of conversion is decided
by the issuer. Upon conversion the investors enjoy the
same status as ordinary shareholders of the company.

 Optionally Convertible Debentures (OCD):

The investor has the option to either
convert these debentures into shares at price decided by
the issuer/agreed upon at the time of issue. 
 On the basis of security
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.
 On The Basis Of Redemption

Redeemable debentures: These debentures

are to be redeemed on the expiry of a certain
period. The interest is paid periodically and
the initial investment is returned after the
fixed maturity period.
 Irredeemable debentures: These kind of
debentures cannot be redeemable during the
life time of the business concern..