What is meant by a debenture?
A debenture is a type of debt instrument that is not backed by any collateral and usually has a term greater than 10 years. Debentures are backed only by the creditworthiness and reputation of the issuer. Both corporations and governments frequently issue debentures to raise capital or funds.
What is a debenture in India?
Debentures are long-term financial instruments issued by a company for specified tenure with a promise to pay fixed interest to the investor. NCD investment can be held by individuals, banking companies, primary dealers other corporate bodies registered or incorporated in India and unincorporated bodies.
How do debentures work?
Debentures are a feature of secured lending, where assets are put up as collateral. This gives lenders the security of knowing they’ll be able to recover the money they’re owed if the business can’t repay the loan. The term debenture essentially refers to the document itself, which is filed with Companies House.
How is debenture cost calculated?
Cost of Debt Formula
- Total interest / total debt = cost of debt.
- Effective interest rate * (1 – tax rate)
- Total interest / total debt = cost of debt.
- Effective interest rate * (1 – tax rate)
What does a debenture mean in the UK?
In the US, the term debenture takes on a slightly different meaning to the UK. In the US, a debenture is a medium to long-term loan, issued to a company by an investor.
What are the rights of holders of secured debentures in India?
The holders of secured debentures have the right to recover their principal amount with the unpaid amount of interest on such debentures out of the assets mortgaged by the company. In India, debentures must be secured. Secured debentures can be of two types :
What is the definition of an irredeemable debenture?
Irredeemable Debentures: Such debentures are perpetual in nature. There is no fixed date at which they become payable. They are redeemable when the company goes into the liquidation process. Or they can be redeemable after an unspecified long time interval.
How are debentures similar to a loan certificate?
They are similar to a loan certificate. Debentures are issued to the public as a contract of repayment of money borrowed from them. These debentures are for a fixed period and a fixed interest rate that can be payable yearly or half-yearly. Debentures are also offered to the public at large, like equity shares.
