Debentures explained

Definition: A debenture is defined as an instrument of debt executed by the company representing its obligation to repay the money at a specified rate and with an interest. It is one of the methods of raising the debt capital by company. 

A debenture is like a certificate of loan or a loan bond evidencing the fact that the company is liable to pay a specified amount with interest and although the money raised by the debentures becomes a part of the company's capital structure, it does not become share capital.

Types: Debentures are primarily issued in two types - Convertible Debenture or Non-Convertible Debenture. Convertible debentures are a type of debentures that can be converted into equity shares of the company. Non-convertible debentures are defined as the type of debentures that cannot be converted into equity shares of the company

Important:
  • Convertible debenture carries lower interest rate, as they carry advantage of converting to equity at later stage
  • Maturity value of Convertible debenture is dependent on the share price. 

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