Debentures are debt instruments issued by companies to borrow money. They are similar to loans but documented as securities. There are different types of debentures that vary in their features: Ordinary debentures do not have security for the interest rate paid and the interest rate can vary. Mortgage debentures are secured by company property that can be sold to repay the debt if the company defaults. Redeemable debentures must be repaid after a certain period, while irredeemable debentures are only repayable if the company winds up. Registered debentures list the owner's name on the document, and convertible debentures allow conversion to company shares.

1. Debentures
By – Hijratullah Tahir
Introduction to Business

2. Debentures
• Derived from Latin word “Debere” – to have debt
• Beside Equity, Some companies may raise part of its
capital through getting loans.
• Mostly, Companies received capital from banks for short
term capital
• While, long term finances may be raised by issuing
debentures and shares.
• As like a share, Debenture - long term capital generated
by company through public borrowing.

3. Debentures
Definition;
• It is document which is issued by the company as an
evidence of its debt.

4. Features of debentures
Following are the core features of debenture;
a. It shows the debt of a company
b. It has a nominal value like shares
c. It is a document issued under the authority of
the company
d. Fixed rate of interest

5. Types of debentures
i. Ordinary or naked debenture
ii. Mortgage debenture
iii. Redeemable debentures
iv. Irredeemable debentures
v. Registered debentures
vi. Convertible debentures
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6. i. Ordinary or naked debenture:
– Ordinary or naked debentures are those which
do not carry any security for interest rate.
– Has variable interest rate.
ii. Mortgage debenture:
– Secured/ Backed by a mortgage.
– In case, Company fails to repay the borrowed
amount at a specified period,
– Debenture holder has a legal right to sell the
property and recover the loan.
Types of debentures …

7. iii. Redeemable debentures:
– Repayable after a certain period
– Companies mostly borrows money on
redeemable debentures
iv. Irredeemable debentures:
– Not payable during the life time of the
company.
– These are payable when the company is
winding up
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Types of debentures …

8. v. Registered debentures:
– Issued name of the owner on the debenture
– The name of the owner thus appears on the face
of the bond.
vi. Convertible debentures:
– Allows the debenture holders to convert their
debentures for the shares of the company.
– If he or she converts his debentures into shares
he or she becomes the owner of the company.
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Types of debentures …