Debentures

“DEBENTURES”
SUBMITTED TO:
• Mrs. Asha Mamraj
MADE BY:
1. RAJ KRISHAN SOLANKI
2. RAJAVI LAKHTAKIA
3. NAUSHEEN IQBAL
Saturday, May 16, 2015 AMITY UNIVERSITY RAJASTHAN 1

DEBENTURES
Debenture is a creditor ship security. It is
a document that creates or acknowledge
a debt. The debenture holder is entitled
to get a fixed rate of interest.
The Companies Act Defines debenture as
“debenture stock ,bonds and any other
securities of a company, whether
constituting a charge or not”.
Saturday, May 16, 2015 AMITY UNIVERSTIY RAJASTHAN 2

PURPOSE OF ISSUING DEBENTURES
• For setting up a new project.
• Expansion or diversification of Existing project.
• Normal capital expenditure for modernization.
• Merge/Amalgamation of companies.

FEATURES
• Date of Maturity: For all the non convertible and redeemable
debentures, the issuing company has to issue repayment to
the debenture holders on the date of maturity. This date is
also mentioned on the certificates and it infers the total time
for which the money is invested by the lenders which is
interval between the date of issue to the date of maturity.
• Charge on Assets and Profits in case of Default: The
debenture holders may have claims over the profits and
assets of the company in case the company has defaulted in
the payment of either the interest or the capital repayment.
• Convertibility: Certain types of debentures are issued with
the option of conversion into equity. The ratio of conversion
and the time period after which conversion will take place is
mentioned in the agreement of debenture. Debentures may be
fully or partly convertible in nature.

Debenture holders are not the owners of the company. They are
considered the creditors of the corporation or in other words, the
company borrow money from them through issuing debenture.
• No voting rights: The debenture-holder is not a shareholder and
cannot vote in the company's general meetings.
• Fixed rate of interest: A debenture with a fixed charge has a fixed
rate of interest. It can be presented as "10% Debenture". They
are always unsecured and earns a fixed rate of interest but has
no share of the profit.
• Control: Since, debentures holders are creditors of the company
and not its owners, they do not have any control over the
management of the company. They do not have any voting rights
to elect the directors of the company or on any other matters.
But, at the time of the liquidation of the company they have prior
claim over share holders and if remain unpaid, they may take
control over the company.

TYPES
I. Secured debentures.
II. Unsecured debenture.
III. Redeemable debentures.
IV. Perpetual debentures.
V. Convertible debenture.
VI. Non-convertible debenture.
VII. Coupon rate debenture.
VIII.Zero coupon debenture.
IX. Registered debenture.
X. Bearer debenture

I. SECURED DEBENTURES
• Those debentures which are secured on
particular assets called secured debenture.
These debenture are also called known as
Mortgage debenture

II. UNSECRED DEBENTURES
• Unsecured debentures are those which are not
secured fully or partially by a charge on asset.
General solvency of the company is the only
security for their holders. These are also called
naked debenture or simple debenture.

III. REDEEMABLE DEBENTURES
• Debentures which are repayable after a
stated period of time are called redeemable
debenture. Debentures issued by companies
are generally of this type.

IV. IRREDEEMABLE DEBENTURES
• Debentures which are not repayable during the life
time of the company are called irredeemable debenture.
the company may repay the money at the time of
liquidation or on the happening of a contingency or
after the expiry of a very long period

V. CONVERTIBLE DEBENTURES
Debentures which are convertible in to shares or
securities at the option of the holders, after a certain
period , are called convertible debentures.
Convertible debentures are two types ;
1.Fully convertible debentures.
2.Partly convertible debentures.

VI. NON-CONVERTIBLE DEBENTURES
• Debentures which are not convertible into Shares or
other securities of the company are called non-
convertible debentures
Saturday, May 16, 2015 AMITY UNIVERSITY RAJSATHAN 13

VII. COUPON RATE DBR.(SPECIFIC
RATE)
• Debentures are usually issued with a specified rate of
interest .This specified rate is called Coupon rate .It
may be either fixed or floating .The floating interest is
usually linked with the bank rate and yields on
treasury bond plus a reward for risk

VIII.ZERO COUPON DBR.
A zero coupon bond is one which does not carry a
specified rate of interest. In order to compensate the
investors such bonds are issued at a substantial
discount .The difference between the face value and
issue price is the total amount of interest related to the
duration of the bond.

IX. REGISTERED DEBENTURES
• These are debentures which are payable to the
registered holders. The names of the holders of these
debentures appear both on the debenture certificate
and in the company’s register of debenture holders.

X. BEARER DEBENTURES
• Debentures which are payable to the bearer are called
bearer debentures .The names of the debenture
holders are not recorded in the register of debenture
holders. They are treated as negotiable instruments
and as such they are transferable by mere delivery.

XI. TRUSTED DEED
A document created by the company regarding the
appointment of trustee's in order to protect the interests
of debenture holders before they are offered for public
subscription
The following are those eligible to be a debenture trustee
• a) A scheduled bank
• b) A public financial institution according to sec 4 A (1) of
companies act 1956
• c) An insurance company
• d) A body corporate

SHARE VS. DEBENTURES
SHARE
1. Proprietor of the company
2. Return in the form of
dividend.
3. Appropriation of profit
4. Always unsecured.
5. Right to attend meeting
and vote
6. Last claim amount of
capital.
7. No charge on the asset of
the company.
8. Except redeemable
preference shareholders
others will get their money
back only at the time of
liquidation.
DEBENTURES
1. Creditor of the company.
2. Return in the form of
interest.
3. Charge against profit
4. Mostly secured.
5. No right to attend
meetings & vote.
6. First claim amount of
capital.
7. Charge is created on the
asset of the company.
8. Debenture holder can get
back their money at the
time of redemption.

ADVANTAGES OF DEBENTURE ISSUE
1. It enables a company to raise funds for a specific period.
2. No dilution of control as debenture holders don’t possess voting
rights
3. Debenture (debt) enables the company to Trade on equity. It can
pay dividend to equity shareholders at a rate higher than overall
ROI.
4. Debenture holders entitled to a fixed rate of interest. E.g.: 10%
debenture
5. They enjoy priority over other unsecured creditors with respect to
debt repayment.
6. Suitable for conservative investors who seek steady ROI with little
or no risk.
7. Interest on debentures is treated as expense and is tax deductible.
8. Company can adjust its gearing in accordance to its financial plan.

DISADVANTAGES OF DEBENTURE ISSUE
1. They have a fixed maturity; hence provision has to be made for
repayment.
2. There is a limit to which funds can be raised through debentures.
3. It is risky if the company fails to pay interest or principal
installment on time, as debenture holders can file petition for
winding up the company.
4. It is not suitable for a company with fluctuating earnings as it may
also lead to fluctuations in payment of dividend payable to equity
shareholders.
5. With more risk, you get more return. Debentures being secure
investments, returns are less.
6. Like ordinary shares, debenture holders will not be regarded as
owners of the company and have no voting rights.
7. Debenture financing enhances the financial risk.
8. Common people cannot buy debenture as they are of high
denominations

THANK
YOU..!


Debentures

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