What does debenture mean?
A debenture is a marketable security (a type of investment) issued by a business or other organization to raise money for long-term activities and growth. It is a form of debt capital so it is accounted for as debt on the balance sheet of the issuing company.
What are debentures with example?
An entity that issues debentures and has lower credit quality can expect to pay a high interest rate, to compensate investors for the increased risk associated with these instruments. Both corporations and governments make use of debentures. Examples of debentures are Treasury bonds and Treasury bills.
What is debentures used for?
Debentures generally have a more specific purpose than other bonds. While both are used to raise capital, debentures typically are issued to raise capital to meet the expenses of an upcoming project or to pay for a planned expansion in business.
What causes debenture?
In corporate finance, a debenture is a debt instrument or a type of bond that is not secured by collateral. Debentures have no collateral backing, hence debentures must rely on the issuer’s creditworthiness and reputation for support.
Is debenture a loan?
A debenture is thus like a certificate of loan or a loan bond evidencing the company’s liability to pay a specified amount with interest. Although the money raised by the debentures becomes a part of the company’s capital structure, it does not become share capital.
Are debentures safe?
What some investors don’t realise is that, unlike fixed-term deposits that carry virtually no risk, debentures come with a high level of risk. Unfortunately, there’s no such thing as a free lunch with fixed interest securities such as debentures. The market is quite efficient at pricing a risk premium into the return.
Is a debenture good?
Debentures are advantageous for companies since they carry lower interest rates and longer repayment dates as compared to other types of loans and debt instruments.
Should I invest in debentures?
What are debentures?
(Definition, Types, Pro and Con) Debentures refer to unsecured bonds of the corporation. Debentures are not secured by any specific company. The debenture holder becomes the creditor general in case of liquidation of the company.
What are the advantages of debentures over equity?
These debentures have priority over any other kind of debt in case the company goes into liquidation. These are also popularly called subordinated debt or junior debt. These debentures have higher returns as they undertake more risk. Investors who want a fixed rate of returns with lower risk prefer debentures over equity.
What are convertible debentures?
These debentures are from the viewpoint of convertibility. Debentures that are changeable to equity shares or in any other security either at the choice of the enterprise or the debenture holders are called convertible debentures.
Do redeemable debentures have to provide for principal repayment?
In the case of redeemable debentures, the company has to provide for principal repayment even during the financial crisis or liquidity crunch faced by the company.