What is the meaning and definition of debenture?

What is the meaning and definition of 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.

What is debenture and explain its types?

Debentures are a debt instrument used by companies and government to issue the loan. Companies use debentures when they need to borrow the money at a fixed rate of interest for its expansion. Secured and Unsecured, Registered and Bearer, Convertible and Non-Convertible, First and Second are four types of Debentures.

What are the advantages of debentures?

The use of debentures can encourage long-term funding to grow a business. It is also cost-effective when compared with other forms of lending. Debentures usually provide a fixed rate of interest for the lender, and this has to be paid before any dividends are issued to shareholders.

What are the benefits of debentures?

The following are the advantages of debentures:

  • Secured investments. Debentures provide greatest security to the investors.
  • Fixed return. Debentures guarantee a fixed rate of interest.
  • Stable prices.
  • Non-interference in management.
  • Economical.
  • Availability of funds.
  • Regular source of income.

What are the characteristics of debentures?

Characteristics of Debenture

  • Written promise.
  • Company Seal.
  • Borrowed Funds.
  • Maturity Period.
  • Claim in Income.
  • Priority Claim on Assets.
  • No Controlling Power.
  • Fixed Rate of Interest.

What are the main features of debentures?

The most salient features of Debentures are as follows:

  • A debenture acknowledges a debt.
  • It is in the form of certificate issued under the seal of the company (called Debenture Deed).
  • It has a rate of interest & date of interest payment.
  • Debentures can be secured against the assets of the company or may be unsecured.

What are debenture bonds?

Debenture bonds are debt instruments that are not secured by collateral. When an investor purchases these bonds, also called unsecured bonds, the company or government agency issuing the bond promises to pay the investor the amount of their investment plus interest at a later date.

Are corporate debentures redeemable?

Corporations also use debentures as long-term loans. However, debentures of corporations are unsecured. Instead, they have the backing of only the financial viability and creditworthiness of the underlying company. These debt instruments pay an interest rate and are redeemable or repayable on a fixed date. Nov 18 2019

What is debenture interest?

In corporate finance, a debenture is a medium- to long-term debt instrument used by large companies to borrow money, at a fixed rate of interest. The legal term “debenture” originally referred to a document that either creates a debt or acknowledges it, but in some countries the term is now used interchangeably with bond,…

What are agency debentures?

What is Agency Debentures. Agency debentures are debts, or bonds, issued by a United States federal agency or a government-sponsored enterprise ( GSE ). Rather than being backed by collateral, these debts rely on the creditworthiness and integrity of the debt’s issuer.

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