What are debentures| What do you mean by debenture?

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 A Debenture is the document is issued by company. It is the certificate issued by company under its seal acknowledging a debt.

Debentures can be divided into following major types.

Unsecured debenture: Unsecured debentures are not given any security on assets of the company. It is also called simple or naked debenture. This types of debentures are traded as unsecured creditors at the time of winding up of the company.

Secured Debenture: Secured debentures are given security on assets of the company. It is also called the mortgaged debenture because these debentures are given against of the assets of the company.

Redeemable debenture: These debentures are to be redeemed on the expiry of certain period. The interest paid periodically and the initial investment is returned after the fixed maturity period.

Irredeemable debenture: This kind of debenture cannot be redeemable during the lifetime of the business concern.

Other types: 

Collateral Debentures

Guaranteed Debentures

First Debentures

Zero Coupon Bond

Zero Interest Bond/Debentures

Features of Debentures

Maturity Period: Debentures consist of Long-term Fixed Maturity period. Normally, debentures consists of 10-20 years period and are repayable with the principle investment at the end of maturity period.

Residual Claim on Income: Debenture holders eligible to get fixed rate of interest at every end of the accounting period.  Debenture holders have priority of claim in income of the company over equity and preference shareholders.

Residual Claim on Assets: Debenture holders have priority of claims on assets of the company over equity and preference shareholders. The debenture holders may have either specific change on the assets or floating change of the assets of the company.

No Voting Rights: - Debenture holders are considered as creditors of the company, hence they have no voting rights.

Fixed Rates of Interest: Debentures yield fixed rate of interest till maturity period.

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