Book Description

Debentures Debentures are essentially a type of debt instrument used by corporations and governments to raise capital. When an entity issues debentures, it is essentially borrowing money from investors who purchase these debentures. In return, the issuer promises to repay the principal amount along with periodic interest payments. Here are some key characteristics of debentures: Fixed Maturity: Debentures have a specified maturity date, upon which the issuer is obligated to repay the principal amount to the debenture holders. Interest Payments: Debentures typically pay a fixed rate of interest periodically (usually semi-annually or annually) until maturity. The interest rate is determined at the time of issuance. Unsecured: Unlike bonds, which may be backed by specific assets of the issuer, debentures are usually unsecured. This means they are not backed by collateral and rely solely on the issuer's creditworthiness. Transferability: Debentures are usually freely transferable, allowing investors to buy and sell them in the secondary market. Variety of Types: Debentures can come in various forms, including convertible debentures (which can be converted into equity shares of the issuing company), callable debentures (which can be redeemed by the issuer before maturity), and zero-coupon debentures (which do not pay periodic interest but are issued at a discount and redeemed at face value at maturity). Risk and Return: Debentures carry varying degrees of risk depending on the creditworthiness of the issuer. Generally, higher-risk issuers offer higher interest rates to compensate investors for the additional risk. Overall, debentures serve as an important source of financing for corporations and governments, providing them with access to capital while offering investors a fixed-income investment option.