Submitted by nsscadmin on
A debenture is a type of debt instrument that is similar to a bond in that it is issued by a company or a government as a way of raising capital. Unlike a bond a debenture is not secured by collateral and must rely on the credit rating and reputation of the issuer for support.
When an investor purchases a debenture from a company or a government they are essentially loaning them money with an expectation that they will be paid back their principal plus interest upon maturity of their investment.
Debentures issued by the government are typically long-term investments with a maturity date of at least 10 years.
Debentures issued by a company also typically have long terms. Corporations sometimes prefer issuing debentures because of their long maturity dates and low interest rates when compared to other loans and debt instruments. However, most debentures have higher interest rates than bonds because of their slightly higher risk as an unsecured investment.
Debentures issued by a company can sometimes be convertible. If a company issues convertible debentures it gives the investor the option to convert their debenture to equity shares in the company after a set period.