A Debenture is a type of bond or other debt instrument issued by companies to borrow funds. It carries the interest rate which is payable to the holder of such instrument in return for investment in the company. Debenture may carry a charge against the assets for securing the amount borrowed.
The Key features of debentures are:
i) Represent debt against the company,
ii) Debentures can be convertible, non-convertible, secured, unsecured,
iii) Interest on debentures is a tax deductible expense,
iv) It does not alter the share capital and voting rights,
v) Enjoys priority in repayment over shareholders,
Usage as a source of finance
While framing the capital structure, a company has various options of financing like equity shares, preference shares, bank loans, debentures, etc.
Therefore a company considers various factors for financing. The debentures may be considered as one such source of finance.
Summary
Debenture is a good source of finance especially when the company is capable to serve regular interest.
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(Republished with amendments)
