A debenture is a medium- to long-term debt security issued by a company as a means of borrowing money at a fixed interest rate.
- Classified as borrowed funds or liabilities, making debenture holders creditors (not owners) of the company.
- Pay a fixed rate of interest (coupon rate) regularly, regardless of whether the company makes a profit or loss.
- Debenture holders have no voting rights in company management.
Types of Debentures
- Convertible Debentures: Can be changed into equity shares of the company after a set time.
- Non-Convertible Debentures (NCDs): Cannot be changed into shares and are repaid at maturity with higher interest rates.
- Secured Debentures: Secured debentures are backed by company assets.
- Unsecured Debentures: Unsecured debentures rely only on the general creditworthiness and reputation of the issuer.
Source: The Hindu