What is a Debenture anyway?
Some people call them debentures. Others call them bonds. Semantics aside, they are debt instruments that companies issue
According to the Securities & Exchange Board of India, a debenture is a bond issued by a company bearing a fixed rate of interest payable on specific dates and a principal amount repayable on particular date on redemption of the debentures. Debentures are normally:
- registered (bearer bonds have phased out)
- secured (against the assets of the company)
- redeemable (at a future date)
Additionally, some debentures are convertible into equity shares of the issuing company.
Diljeet Titus of Titus & Co. Advisors (see other box) adds that bonds present a few variations with respect to debentures: bonds can have variable interest rates and can be issued without interest coupons (in which case they are sold at a discount over face value). Furthermore, bonds are usually not secured and therefore usually carry higher risk.
