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What are Debentures?

by Team Goseeko

Debentures” comes from the Latin word “debere” which means “borrow”. It is a written means given by a company that recognizes debt receivable from the public.

Furthermore, the Companies Act defines it as “Bonds includes other securities, whether or not they constitute a claim against a company’s assets.”

Debentures Characteristics

As a means of investment, corporate bonds have several advantageous features. Includes several features of bonds –

  • Firstly, this is a preferred investment option as income determination is by a fixed income rate and investment is secured by billing the company’s assets.
  • Fixed returns at lower risk are the preferred investment tool for everyone.
  • Secondly, the holding company bonds do not imply ownership of the company. Therefore, bondholders do not have the right to vote or control the control of the issuing institution.
  • Nevertheless, in the case of default returns, they can take legal action against the organization.
  • Further more due to their high par value, corporate bonds provides higher returns than equity investments.
  • Moreover when liquefying a company, bondholders get priority in repaying the borrowing amount.
  • In addition, it affiliates to oblige to return their debts to bondholders at a given interest rate, regardless of profit or loss.

Protected and unprotected Debentures :

Firstly ,Secured bonds creates a claim on the company’s assets, thereby mortgaging the company’s assets. Unsecured bonds do not impose any fees or collateral on the company’s assets.

Registered and bearer:

Secondly, these bonds records in the company’s bondholder register. In contrast, bonds that are transferable by mere delivery are called bearer bonds.

Convertible and non-convertible:

Moreover, Conversion of shares after the expiration of a specified period are known as Convertible bonds. Similarly , on the other hand, these bonds are non- convertible into stock.

1st and 2nd Debentures:

Lastly, Repayment of bonds before other bonds are known as the first bonds.

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