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Example of a debenture It bears 5% interest per year, payable on 31 July every year. An investor agrees to offer the loan at a fixed charge. If ABC defaults on the payment, the investor may now sell the company's assets to raise the capital needed to fulfil the loan.

While shares represent a portion of ownership in a company and entitle the shareholder to a share of the company's profits, debentures are debt instruments that offer fixed interest income to the investor and have priority over shareholders in terms of repayment in case of bankruptcy or liquidation.

An entity that issues debentures and has lower credit quality can expect to pay a high interest rate, to compensate investors for the increased risk associated with these instruments. Both corporations and governments make use of debentures. Examples of debentures are Treasury bonds and Treasury bills.

Types of Debentures Convertible Debentures. The investors' debenture holdings can convert these types of debenture into equity shares of the company. ... Non-Convertible Debentures. ... Registered Debentures. ... Unregistered Debentures. ... Redeemable Debentures. ... Irredeemable Debentures. ... Incentivized Debentures.

Debentures are the most common form of long-term debt instruments issued by corporations. A company will issue these to raise capital for its growth and operations, and investors can enjoy regular interest payments that are relatively safer investments than a company's equity shares of stock.

A debenture is a form of unsecured debt (in American usage). The debenture is the most common variety of bonds issued by corporations and government entities. Strictly speaking, a U.S. Treasury bond and a U.S. Treasury bill are both debentures.

A loan must be paid back by a set date and must be secured against something of equal value. A debenture doesn't need to be taken out against something of equal value, simply something deemed sufficiently valuable, which is why they can be secured against something variable like inventory.

A company can issue Debentures to the Public with an option to convert such debentures into shares, either wholly or partly at the time of redemption which must be approved by conducting a general meeting. A Company cannot issue debentures carrying any voting rights.

NCDs cannot be withdrawn before maturity. Since NCDs are listed on the stock market they can be sold in the secondary market.

The debenture issued by a company is an acknowledgment that the company has borrowed an amount of money from the public, which it promises to repay at a future date. Debenture holders are, therefore, creditors of the company.