Meaning of Debenture
Suppose a company wants to raise funds from the public but at the same time the company does not want to divide its ownership then debentures are the best option for them to raise long term depth capital the debentures are the long term fixed interest-bearing security issued by the company to raise funds it is written acknowledgment of money borrowed by the company promising to repay it at a future date it is a document containing the terms and conditions like rate of interest repayment time securities offered etc.
let's understand the features of debentures;
1.loan document
2.At the debenture is a loan document that evidences our loan made to the company
3.Fixed rate of interest
4.It is fixed interest-bearing security where interest fall due on a specific date
5.Interest is payable, irrespective of the profit level.
6.Payment of interest at a fixed rate is immaterial of the profit level of the company that is interesting is paid to the debenture holders even if there is a loss in a particular year.
7.Buying and selling are performed through the stock exchange.
8.Investor can buy or sell it from the stock exchange at a price less than or more than its face value.
9.Repayment at a specified future date.
10.The total investment of investor is repaid at the time of debenture agreement date or it is converted into shares or other debentures .
Types of Debentures.
On the basis of security, convertibility, negotiability permanence, priority, etc
Secured Debentures & Unsecured Debenture
Secured Debentures are such kinds of debenture which are secured by a charge upon some or all the assets of the company the charge can be fixed charge or floating charge otherwise they are known as unsecured dentures.
Convertible Debentures & Non-Convertible Debenture
Convertible Debentures as the name convertible debentures are the debentures that are converted into equity shares after a certain time. Nonconvertible Debentures are the debentures that cannot be converted into shares in the future they can only be repaid.
Register Debentures
Register debentures which are payable toward the gesture holder whose name address and other details are recorded in the register of the company they are called the register debentures
Bearer Debentures
Bearer debentures are the debentures that can easily be transferable by mere delivery
Redeemable Debentures
Redeemable Debentures these debentures are repayable after a certain time as per the terms of the issue.
Irredeemable Debenture
They are the debentures that are not repayable during the lifetime of the company they are only repaid at the time of liquidation of the company
First Mortagege Debenture
These debentures are payable first out of the property charged.
Second Mortagege Debenture
These debentures are the debenture that is payable after settling the claims of the first mortgage debenture.
Types of issue of debenture
Debenture can be issued for cash for the kind that is considered other than cash and as collateral security .when debenture is issued for the cash there can be their possibilities they can be issued at par premium and discount.
When the issue price of debenture is equal to face value then they are said to be par but when the price of the debenture is greater than the face value then they are said to issue at a premium and when the debenture is issued at a lower price then the face value then it is referred as a discount.
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