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A Debenture is a long-term debt instrument where a company borrows funds from investors at a fixed interest rate, repayable on maturity.
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A Debenture is a type of long-term debt instrument issued by companies to raise funds from the public. It is essentially a loan taken by the company, for which it agrees to pay a fixed rate of interest at regular intervals and return the principal amount on maturity. Unlike secured loans, most debentures are unsecured, meaning they are not backed by specific assets; instead, they rely on the company’s creditworthiness.
Debentures can be of different types, such as convertible debentures (which can be converted into shares), non-convertible debentures (NCDs), and redeemable debentures. They are widely used by companies for expansion, working capital, and infrastructure projects.
Investors prefer debentures for their fixed income and comparatively lower risk than equity, though they carry higher risk than secured bonds.
Example: A company issues NCDs at 8% annual interest for 5 years, meaning an investor earns fixed returns and gets back the principal on maturity.
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