bond vs debentures

Posted on 11-10-2015        By chetan

Financial Crisis can come in any form and the person who is prepared in advance can fight with this crisis. To avoid these unforeseen financial crises everyone invests in different instrument that can generate returns on the income. There are many options available in the market that can be classified as risky and non risky. It is very well understood that risky instruments fetch high instruments and the non risky ones can give low returns. Here, Debentures and bonds are two such options that can give good returns on the investment. Debenture is an instrument issued by a company that is generally in the form of convertible or non convertible into equities. Bonds are either issued by companies or by governmentand can be seen as a loan taken by them to meet their financial needs. These two instruments are basically loan taken from the investor but the repayment scenarios are generally different. Debentures Debentures come from a latin word called ‘debre’ meaning ‘to borrow’. Debentures are loans to the company. The companies issue debentures which are coveting expansion and can build sustenance in the business in the medium to long term. Just like equities these can be transferred to anyone, but does not have voting rights in the company’s general meetings. Debentures are simply loans taken by the companies and do not provide the ownership in the company. Debentures are of two types convertible and nonconvertible. The convertible debentures are the ones that can be converted into equity shares at a later time. This convertibility provides attraction to the investor but yield lower interest rates. Non convertible debentures does not convert into equity shares thus can yield a higher interest rate.

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