A project on debentures

Presented by:Monjima dasgupta :- 23 Shweta rani :- 24 Namrata das :- 25 Ritesh kumar :- 26 Anisha singh :- 27 Sunny :- 28

Definition
A Debenture is a long-term Debt Instrument, which is not backed by Collaterals. Debentures are unsecured debt backed by the creditworthiness and reputation of the Debenture issuer and documented by an agreement called an indenture.

It is issued usually by large, financially strong companies with excellent bond ratings. One example of debenture is an unsecured bond.

Characteristics of a debenture
It

is an instrument in writing. An oral promise in acknowledgement of a debt is not a debenture. It is an acknowledgement of the indebtedness of the company to its holder for the amount stated in it.

It

is usually under the seal of the company but it is not necessary. A certificate signed by two directors of a company and without bearing the companys seal is a valid debenture. is one of a series of like debentures. But a single debenture may be issued to one man.

It

 It

is generally secured by a charge, fixed or floating on any part of the companys property or undertaking. But this is, however, not an essential condition because section 2(12) provides that the debentures may or may not constitute a charge on the assets of the company.
It provides for the payment fixed sum with interest of a specified rate by a specified time. But this is not essential because a company may issue perpetual debentures. Section 120 of the companies act 1956 expressly provides for the issue of perpetual or irredeemable debentures w3hich are made payable only in the event of a winding up or some serious default with the company.

TYPES OF DEBENTURES
Debentures are categorized into the following types: Convertible Debentures: This is a debenture which can be converted into some other type of securities (for example stocks). Corporate Debentures: Corporate Debentures are Debentures issued by companies and they are insecure in nature.

Redeemable debenture: - these debentures are to be redeemed on the expiry of ascertain period. The interest on the debenture is paid periodically but the principle amount is returned after a fixed period. Irredeemable debentures:- such debentures are not redeemable during the life time of the company. There are payable either on the winding up of the company or at the time of any default on the part of the company. Secured or mortgage debentures: - these debentures are given a security on assets of the debentures company. In case of default in the payment of interest or principle amount, debenture holders can sell the assets in order to satisfy their claims.

Bank Debentures: This type of Debentures is issued by banks.

Government Debentures: These include Treasury bond (T-Bond) and Treasury bill (T-Bill) issued by the government. They are usually regarded as risk-free investments. Subordinated Debentures: This is a particular type of Debenture, which ranks below regular Debentures, senior debt, and in some instances below specific general creditors.

Corporation Debentures: Corporation Debentures are issued by various corporations. Exchangeable Debentures: They are like Convertible Debentures, but this Debenture can only be converted to the common stock of a subsidiary company or affiliated company of the Debenture issuer.
There are some other types of Debentures such as Senior Debentures, Secured Debentures, Exchange Debentures, Secured Convertible Debentures, Convertible Senior Debentures, Unsecured Convertible Debentures, Subordinated Convertible Debentures, Senior Secured Convertible Debentures, Junior Subordinated Debentures, Senior Subordinated Debentures, and Senior Secured Debentures etc.

Advantages of debenture
The Advantages of Debentures are as follows: 1) The holders of the debentures are entitled to a fixed rate of interest. It can be presented as "5% Debenture". 2) Debentures are for those who want a safe and secure income as they are guaranteed payments with high interest rates. 3) They have priority over other unsecured creditors when it comes to debt repayment.

Disadvantages of debentures
The Disadvantages of Debentures are:
1) Unlike ordinary shares, debenture holders are not considered the owners of the company. They are long term loan capital and holders will have no right to vote at the annual general meeting. 2) Debentures are more secure than stocks, but will lead to a lower rate of theoretical return. 3) It is a type of debt instrument which is not secured by collateral (or physical asset). In case of bankruptcy, the bond holders are given priority over the debenture holders.

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