Meaning and Definition of Debentures
Debentures are a type of debt instrument that is issued by a company to raise capital. They are similar to bonds in that they represent a promise by the company to repay the principal amount of the debenture, plus interest, on a specified date in the future.
Debentures are typically unsecured, meaning they are not backed by any specific assets of the company. Instead, they are backed by the general creditworthiness and reputation of the company. This means that debenture holders are considered to be unsecured creditors and have a lower priority in the event of the company’s liquidation compared to secured creditors such as banks or bondholders.
Debentures can have different maturity periods, they can be long-term or short-term and they can have fixed or floating interest rates. They can also have different features such as call or put options, which gives the issuer the right to redeem the debentures before the maturity date, or the holder the right to sell the debenture back to the issuer before the maturity date.
In India, Debentures are regulated by the Securities and Exchange Board of India (SEBI) and the Companies Act. Companies need to comply with the regulations and guidelines set by these authorities in order to issue debentures.
In summary, debentures are debt securities issued by a company to raise capital, providing a fixed income stream to the investors in the form of interest. They do not confer ownership rights like shares but they have priority over shares in the event of liquidation.
