finance
overview
|
corporate news
|
corporate finance
|
m&a/jv
| insurance
market deals |
virtual library |
venture capital | enviro clearance
| personal finance |
faqs
Finance > Corporate Finance > Sources
> Debentures/ bonds
DEBENTURES OR BONDS
Debentures or bonds are essentially debt instruments which enable the
holder to earn a fixed rate of return, fixed maturity period. An
additional benefit on these instruments is relatively lower capital
uncertainty. In India, debenture can be of both types i.e. secured or
unsecured. There are many types of debentures available in the market:
(a) convertible,
(b) non-convertible,
(c) partially convertible,
(d) redeemable,
(e) perpetual,
(f) registered,
(g) bearer,
(h) rights,
(i) callable, etc.
These can be either secured by a mortgage on the assets of the company or unsecured. The redeemable debentures have to be repaid by the company at the end of a specified period, say, 7 years. The debentures are tradable on Stock Exchanges, if they are quoted. More recently, convertible debentures have become popular, as they can be converted into equity after a specified period and at a specified price. In this case, debt capital becomes ownership capital after a specified period. These debentures may be partly or fully convertible into equity, as per the terms of issue. The non-convertible portion (called khoka) is also traded in the market.
The proportion of debentures, both convertible and non-convertible, to total capital issues increases during boom years, mainly due to the popularity of conversion and due to the creditworthiness of the companies floating them.