February 3, 2024

Features Of Debentures: What Are The Main Features Of Debentures?

Features Of Debentures: What Are The Main Features Of Debentures?

The main feature of debenture is its assurance of repayment on a specified due date, giving investors a sense of security that their principal amount and interest will be returned as promised.


What Is Debenture?

Debentures are like long-term loans companies take from the public to raise money. These loans have a fixed interest rate and a specific date the company must repay them.

What Are The Main Features Of Debentures?

The main feature of debenture is listing on stock exchanges, ensuring liquidity for investors. This means that holders can easily buy or sell their debentures in the secondary market, increasing their appeal as an investment option.

Promise to Repay

Debentures are a written promise by a company to repay a specified amount of money to the holder.

Face Value

Debentures possess a face value, commonly in multiples of Rs.100, providing clarity about their nominal worth.

Maturity Date

Debentures have a specified maturity date when the company promises to repay the principal amount and any outstanding interest. This date is mentioned in the debenture certificate.

Interest Payments

Holders of debentures receive regular interest payments. The frequency of these payments can be either half-yearly or annually, providing a steady income to investors.

Interest Rate Variability

The rate of interest on debentures can vary depending on several factors, including the company’s financial health, prevailing market interest rates, and the nature of the company’s business operations.

Redemption Options

Debentures can be redeemed in different ways:

   – At Par: The company repays the principal amount at face value.

   – At Premium:The company repays the principal amount higher than the face value.

   – At Discount: The company repays the principal amount at a lower value than the face value.

Trust Deed

A trust deed is a legal document that outlines the company’s obligations and the rights of debenture holders. It serves as a formal agreement between the company and the trustee.

Voting Right

Debenture holders typically do not have voting rights in the company’s general meetings, except in exceptional circumstances when the company seeks their opinion.

Listing Requirements

To make debentures accessible to a broader range of investors, they must be listed and traded on at least one stock exchange. This provides liquidity to the debenture market.

State The Features Of Debentures – Quick Summary

  • The primary debenture feature is stock exchange listing, offering liquidity for investors. Holders can trade them in the secondary market, enhancing their investment attractiveness.
  • Debentures are akin to long-term loans from the public, offering fixed interest rates and a predetermined repayment date, serving as a means for companies to raise funds.
  • Debentures offer flexibility in redemption, allowing them to be redeemed at Par, Premium, or Discount, providing diverse options for investors based on their preferences and market conditions. 
  • Debenture holders usually lack voting rights in company meetings, except in rare cases when the company seeks their input.
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Features Of Debentures – FAQs  

1. What Are The Main Features Of Debentures?

The main features of Debentures are long-term debt instruments issued by companies featuring fixed interest rates and maturity dates. They represent a loan from investors to the issuing entity, providing a regular income stream.

2. What Is Debentures In India?

A debenture is a debt instrument that signifies a company’s obligation to repay borrowed funds, usually with interest, over a specified period.

3. What Are The Differences Between Shares And Debentures?

The main difference between shares and debentures is that the shares signify ownership in a company, granting voting rights and dividends. In contrast, debentures are debt instruments, representing loans to a company, offering fixed interest but no ownership privileges.

4. Why Are Debentures Important?

Debentures are crucial for companies to raise capital without diluting ownership. They offer a reliable investment avenue for individuals seeking fixed returns with lower risk than equities.

5. Is Debenture Taxable In India?

Yes, interest earned on debentures is taxable in India. Debenture holders must report interest income in their annual tax returns, subject to applicable tax rates.

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