Debentures and Bonds

Financial Institutions and Services

MB 764
 • A bond is a debt security, similar to an
IOU. Borrowers issue bonds to raise
money from investors willing to lend
them money for a certain amount of time.
• When you buy a bond, you are lending to
the issuer, which may be a government,
Bonds municipality, or corporation. In return, the
issuer promises to pay you a specified
rate of interest during the life of the bond
and to repay the principal, also known as
face value or par value of the bond, when
it "matures," or comes due after a set
period.
Why do people buy bonds?

Investors

• They provide a predictable income stream. Typically, twice a year.

• If the bonds are held to maturity, bondholders get back the entire principal.
• Bonds can help offset exposure to more volatile stock holdings.

Companies, governments and municipalities

• Providing operating cash flow

• Financing debt
• Funding capital investments in schools, highways, hospitals, and other projects
Debenture
• A debenture is a type of debt instrument that is not backed
by any collateral and usually has a term greater than 10
years.
• Debentures are backed only by the creditworthiness and
reputation of the issuer.
• Both corporations and governments frequently issue
debentures to raise capital or funds.
• Some debentures can convert to equity shares while others
cannot.
• Like other types of bonds, debentures are documented in an
indenture. An indenture is a legal and binding contract
between bond issuers and bondholders.
• The contract specifies features of a debt offering, such as the
maturity date, the timing of interest or coupon payments,
the method of interest calculation, and other features.
Corporations and governments can issue debentures.
Why people buy
Debentures?
Investor buys debenture:

• Debentures provides fixed income at lesser risk.

Company issues Debentures

• Debentures do not participate in profits of the company.

• Ideal when sales and earning are stable
• does not dilute control of shareholders on management
as debentures do not carry voting rights.
• less costly as compared to the cost of equity capital as the
interest payment on debentures is tax deductible.
Difference between Bonds and Debentures
Bonds
• The tenure is longer.
• The risk level is lower as its
backed by collaterals.
• Bonds get generally secured
by the collateral or physical
assets of the issuing
company.
Debentures
• The tenure will be
comparatively shorter.
• The risk level is comparatively
higher since it’s not backed by
any collateral.
• Debentures are unsecured and
are not backed by any
collateral. The
creditworthiness and
reputation of the issuer play a
key role in backing.
Types of Debentures
 Convertible Debenture
The investors’ debenture holdings can convert these types of debenture into equity
shares of the company

Non – Convertible Debentures

The investors cannot convert the non-convertible debentures into equity shares.
 Registered Debenture
The details of registered debenture holders are registered in the company’s records.

Bearer Debenture
These debentures are issued by a company that does not require its holders to maintain records.
 Redeemable Debenture
These debentures are redeemable as per the mentioned redeemable date on the company’s debenture
certificate.

Irredeemable Debenture
Irredeemable debentures are the opposite of redeemable debentures and have no fixed date for the
debenture holder’s payment.
 Current NCD

Company Name Issue Open Issue Close Issue size

Date Date (Base in crore)
Muthoot Finance Limited Feb 08, 2023 Mar 03, 2023 500
Indiabulls Commercial Credit Limited Jan 05, 2023 Jan 27, 2023 200
IIFL Finance Limited Jan 06, 2023 Jan 18, 2023 1000
Incred Financial Services Limited Jan 09, 2023 Jan 27, 2023 175
Edelweiss Financial Services Limited Jan 03, 2023 Jan 23, 2023 200
Muthoot Fincorp Limited Jan 02, 2023 Jan 27, 2023 200