Explain the main features and types of debentures.

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 Explain the main features and types of debentures. 

Meaning- If a company needs funds for expansion and development but does not want to increase its share capital, it can borrow from the general public by issuing certificates for a set period of time at a fixed rate of interest. A loan certificate of this type is known as a debenture. Debentures are issued to the public for subscription in the same way that equity shares are. A debenture is a document that acknowledges the receipt of money and is issued under the company's common seal.

Features of Debentures-

1. Debenture holders are the company's creditors who pay a fixed rate of interest.

2. A debenture must be redeemed after a set period of time.

3. Debentures are classified as either secured or unsecured.

4. The interest on a debenture is a charge against profit and thus a tax deductible expense.

5. Debenture holders have no voting rights.

6. Even if there is a loss, interest on a debenture is payable.

Types of Debenture-

1. Convertible Debenture- A convertible debenture is a long-term debt instrument issued by a company that can be converted into equity shares after a certain time period. They can be convertible in part, fully, or only partially. These debentures are unsecured bonds because no primary collateral is attached to them.

2. Non- Convertible Debenture- Non-convertible debentures (NCDs) are fixed-income instruments that are typically issued as a public offering by high-rated companies in order to accumulate long-term capital appreciation. When compared to convertible debentures, they have higher interest rates. They cannot be converted into stock or equity.

3. Registered Debenture- These debentures are such debentures in which all details of the debenture holders' addresses, names, and particulars of holding are filed in a register kept by the enterprise. Such debentures can only be transferred using a standard transfer deed.

4. Bearer Debenture- These are debentures that can be transferred by delivery, and the company keeps no record of the debenture holders. Debenture interest is paid to the person who produces the interest coupon attached to the debentures.

5. Naked Debenture Or Unsecured Debentures- They do not have a specific charge on the company's assets. However, a floating charge may be imposed by default on these debentures. Typically, these debentures are not circulated.

6. Mortgage Debenture Or Secured Debentures- Secured debentures are debentures in which a charge is placed on the enterprise's properties or assets for the purpose of payment. The charge could be floating or fixed. A fixed charge is imposed on a specific asset, whereas a floating charge is imposed on the enterprise's overall assets.

7. Redeemable Debenture- These are the debentures that are due at the end of the time frame, either in a lump sum or in instalments over the course of the enterprise's life. Debentures can be reclaimed at a premium or at face value.

8. Irredeemable Debenture- The company makes no attempt to repay money acquired or borrowed by circulating such debentures. These debentures are repayable upon the closure of a business or the expiration (cessation) of a long period.

9. First Debenture- The first debenture is a debenture that is repaid before the second debenture.

10. Second Debenture- The second debenture is paid after the first debenture has been paid off.

Conclusion-

These are the types of Debenture.

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