A debenture is a debt instrument which is not backed by any security or collateral. The security of the debenture is the credit of the Company issuing the security. Higher the standing of the Company, lower is the interest rate offered on the debenture. Companies use debentures to raise funds in the medium or long-term.
Types of Debentures
- Unsecured debentures: As per Indian Money reviews, unsecured debentures have no security on assets. They are just like unsecured creditors and enjoy the same rights as unsecured creditors.
- Secured debentures: These debentures enjoy security over the assets of the Company. If the Company defaults on debenture interest, debenture holders sell assets to recover their dues.
- Bearer debentures: You can purchase bearer debentures for a consideration (sum of money). The coupons for interest are attached to the debentures. You/bearer can claim interest from the Company, when it becomes due.
- Registered debentures: According to Indian Money Bangalore, if you purchase a registered debenture, your name is entered in a register. Interest coupons are sent to you/persons whose name is present in the register.
- Redeemable debentures: These debentures are redeemed after a point in time. They are redeemed on expiry of a certain period.
- Irredeemable debentures: As per Indian Money review Bangalore, these debentures are not redeemed within the lifetime of a Company. They are payable only on winding up or on Company default.
- Convertible debentures: Convertible debentures give the holder the right to convert debentures to equity after a certain time.