Debenture

What is a Debenture?

A debenture is a type of debt instrument that is not secured by physical assets or Collateral. A debenture is a medium to long-term debt format that is used by large companies to borrow money. They are backed only by the general creditworthiness and reputation of the issuer. Debentures are typically loans that are repayable on a fixed date, but some debentures are irredeemable securities, which means that they do not have a fixed date of expected return of the funds.

Both corporations and governments frequently issue this type of bond to secure Capital. Like other types of Bonds, debentures are documented in an Indenture.

Types of Debentures:

Convertibility point of view-

Convertible Debentures

These debentures can be converted into equity shares of the issuing company after a stipulated period of time. These may be Partly Convertible or Fully Convertible Debentures.

Non-convertible Debentures

These are regular debentures which cannot be converted into equity shares. These are debentures without the convertibility feature; these usually carry higher interest rates than their convertible counterparts.