Borrowed capital consists of funds raised through loans and credit from various sources such as debentures, bonds, and financial institutions. It creates obligations for the company to repay the principal and pay interest. Borrowed capital is temporary in nature compared to equity capital. Debentures are debt instruments used by companies to borrow money at fixed interest rates. Bonds are also debt instruments where an investor loans money to a corporate or government body. Financial institutions such as banks provide long-term loans to companies. Borrowed capital allows companies to raise funds for expansion while creating repayment obligations.

1. BORROWED CAPITAL
Mr. Atul Abhiman Agalawe
(M. Com, B. Ed, D.B.M)

2. BORROWED CAPITAL
 It consists of the amount raised by way of
loans or credit.
 It creates obligation on the company
regarding payment of return and repayment
of capital.
 It is a temporary capital.
 They are creditors of the organization.

3. Borrowed
Capital
Debentures Bonds
Loans from
Institutions

4. DEBENTURE
 The debenture has come from Latin word
‘debare’ which means to ‘owe’
 It is a medium- to long-term debt instrument
used by large companies to borrow money,
at a fixed rate of interest.

5. DEFINITIONS
1. “Debenture includes—debenture stock, bonds and any other
securities of a company, whether constituting a charge on the
assets of the company or not.” ____Sec 2 (12) of Companies Act
1956
2. “Debenture” includes debenture stock, bonds or any other
instrument of a company evidencing a debt, whether constituting a
charge on the assets of the company or not. ____Sec 2 (30) of
Companies Act 2013
3. “Debenture is a document given by the company as evidence of
debt to holder usually arising out of loan and most commonly
secured by charge.” ______ Tophon
4. “Debenture is an instrument under seal evidencing debt, the
essence of it being admission of indebtness.” _____ Palmar
5. “Debenture is a document which either creates a debt or
acknowledges it.” —Justice Whity
6. “A debenture is an instrument issued by the company under its
common seal acknowledging a debt and setting forth the terms
under which it is issued and is to be paid.” —Naidu and Datta

7. FEATURES
1. Promise
2. Face Value
3. Time of Repayment
4. Interest
5. Assurance of
repayment
6. Parties:
a) Company
b) Trustee
c) Debenture holder
7. Rights of Debenture
holders
8. Terms of Issue
9. Security
10. Listing
11. Trading on equity
12. Types

8. On the basis of
security
Secured
Unsecured
On the basis of
Transfer
Registered
Bearer
On the basis of
Repayment
Redeemable
Irredeemable
On the basis of
Conversion
Convertible
Non-Convertible
On the basis of
Priority/Claim
First
Second

9. BONDS
 Like debenture, bonds are popular in America for the long-term
industrial finance.
 A bond is a debt investment in which an investor loans money to an
entity (typically corporate or governmental) which borrows the funds for
a defined period of time at a variable or fixed interest rate.
 A bond is an instrument of indebtedness of the bond issuer to the
holders. It is a debt security, under which the issuer owes the holders a
debt and, depending on the terms of the bond, is obliged to pay them
interest (the coupon) and/or to repay the principal at a later date,
termed the maturity date.
 “A bond is an interest bearing certificate issued by a government or
business firm, promising to pay the holder a specific sum at a specified
date.” ___Webster Dictionary
 A written and signed promise to pay a certain sum of money on a
certain date, or on fulfillment of a specified condition. All documented
contracts and loan agreements are bonds. ____Business Dictionary

10. FEATURES
1. Contract
2. Nature of Finance
3. Status of Investor
4. Return on Bonds
5. Repayment
6. Guarantee by Government
7. Tax Benefits
8. Parties:
a) Corporation
b) Bondholder
c) Trustee

11. Bonds
Based on
Coupon
Fixed –rate
Bonds
Floating–rate
Bonds
Zero Coupon
Bonds
Deep discount
Bonds
Inflation-
indexed
Bonds
Based on
Option
Bond with
Call option
Bonds with
Put option
Based on
Redemption
Single
Redemption
Amortizing
Bonds

12. LOANS FROM FINANCIAL INSTITUTIONS
 A financial institution is an establishment that
conducts financial transactions such as
investments, loans and deposits. Almost
everyone deals with financial institutions on a
regular basis. Everything from depositing money
to taking out loans and exchanging currencies
must be done through financial institutions.
 It refer to those institutions which provide
financial assistance.

13. Financial
Institutions
Banking Financial
Institutions
Non-Banking
Financial Institutions

14. BANKING FINANCIAL INSTITUTIONS
 These institutions accepts the deposits from
the public repayable on demand and lend the
money or investment. E.g. Commercial
Banks, Cooperative Banks
 Banks provide long term loans

15. Non-Banking
Financial
Institutions
Development
Banks
Financial
Institutions
Investment
Institutions
State Level
Institutions

16. CLASSIFICATION OF NON-BANKING FINANCIAL
INSTITUTIONS
 Development Banks: IDBI, IFCI, ICICI,
SIDBI, IRBI
 Financial Institutions: RCTC, TDICI, TFCI
 Investment Institutions: LIC, UTI, GIC
 State Level Institutions: SFC, SIDC

17. FUNCTIONS OF FINANCIAL INSTITUTIONS
1. Subscription of securities
2. Granting Loans
3. Guaranteeing Loans
4. Guaranteeing Foreign Currency Loans
5. Guaranteeing Credit Purchase of Capital Goods
6. Other Functions:
a) Underwriting securities
b) Acting as Agent
c) Issue Letter of Credit
d) Discounting the Bills
e) Provide venture capital, Lease Finance
f) Undertaking Promotional Activities
g) Guidance for Management and Business

18. IMPORTANCE AND NEED
1. To Develop sound capital market
2. To mobilize financial resources
3. Capital formation
4. Planned Economy
5. Financing Small Business
6. Foreign exchange need
7. Govt. Taxation Policy
8. Rate of Interest