Debenture
Topic: Financial Markets, Instruments, Insurance and Pensions · NCERT: Beyond NCERT
Meaning
A debenture is a long-term debt instrument that a company issues to borrow money. It is proof of a loan, and the company pays interest on it. Debentures are often unsecured, meaning no specific asset backs them and investors rely only on the company's ability to repay. Secured debentures are backed by the company's assets.
Example
A company issues non-convertible debentures (NCDs) to the public to fund an expansion. Investors receive fixed interest every year and get their principal back at maturity. NCDs can never be turned into shares.
Don't confuse with
- Equity share: a share makes you a part-owner of the company. You get voting rights and a residual claim, meaning you are paid only after all other claims are met. A debenture holder is a lender, not an owner, and is paid before shareholders.
- Convertible debenture: this can be converted into shares, unlike an NCD.
Related concepts
- Corporate bond
- Convertible bond
- Foreign Currency Convertible Bond
- Masala bonds
- Foreign bonds
- Perpetual bond
- AT1 bonds
- Green bonds
- Sovereign green bonds
- Blue bonds