Normally debenture is termed as financial instrument used to raise money. Basically, they are debt or a kind of liability for the company. It is a written acknowledgment of debt. Furthermore, it is a promise to repay the debts in the future. It contains a company seal on it. and is sometimes also used by a public company to raise money. There are not one but many kinds of debentures. Which are explained to you further in the article.
GENERAL FEATURES OF A DEBENTURE:
- fixed rate of interest
- borrowed funds
- compulsory payment of interest
- no voting rights
- appointed trusties
- Furthermore, often issued as collateral security or secondary security.
But, these features might change according to the type of debenture., which are given to you below.
TYPES OF DEBENTURES-
1. ON THE BASIS OF REGISTRATION-
- Registered Debentures– Ones that are registered with the company are known as registered debentures. They are not negotiable instruments. Also, along with the name of the holder, the register of the debenture records contains the details about the number, value and types of debentures.
- Bearer Debentures– the interest is given to the bearer of the debentures. That is whosoever holds the debenture can claim for the interest. These are not recorded in the books of the company.
2. ON THE BASIS OF SECURITY
- Secured or mortgaged Debentures– these debentures have partly or full security in form of charge over the asset of the company.the holders can recover the principal amount as well as the unpaid interest . this can be done with the help of the mortgaged debentures.
- Unsecured Debentures– the debentures which are not backed up with any security in the form of an asset. Such, debentures are known as unsecured debentures. Also known as simple debentures.
3.ON THE BASIS OF REDEMPTION-
- Redeemable Debentures– the debentures which are promised to be repaid in full or installment after the end of a specific period. However, sometimes they are redeemed at the request of the holder.
- Irredeemable Debentures– these debentures are not repayable during the lifetime of the company. They might be redeemed at the liquidation of the company.
4.ON THE BASIS OF CONVERTABILITY-
- Convertible Debentures– The debentures which can be converted into shares at the end of certain period. But, this happens at the option of the holders.
- Non – convertible Debentures– they are the type of debentures which can not be converted into the shares.
5.ON THE BASIS OF PRIORITY-
- Preferred debentures – The are like preference shares. They are redeemed before others at the time of winding up.
- Ordinary Debentures – the debentures redeemed after preferred debentures.