What is Debentures ?

Debentures stands for a long-term instrument of debt, called bond in the U.S.

A debentures holder is the creditor to the company that loans a fund for a duration anywhere between seven to 10 years against a pre-specified static rate of interest. The debentures are redeemed following the stipulated load period. This essentially means that the loan is paid back – occasionally with a pretty small premium. Debentures are typically secured against the assets of the company.
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All convertible debentures can be fully or even partly converted into a specific number shares at a premium after a fixed duration. It is possible for such debentures to carry a lower rate of interest compared to non-convertible debentures (which can be redeemed only after the agreed-upon period).

In general, a conservative investment, there are little chances of risks as well as little prospect of appreciation. In the event, no exit mechanism is in place and neither is any adequately organized secondary market, such investments can be called liquid investments.

Edited and Updated 2nd January 2014

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