Define: Debenture

A debenture is a type of debt instrument that is issued by a company or government entity to raise funds. It represents a loan agreement between the issuer and the debenture holder, who is entitled to receive regular interest payments and the repayment of the principal amount at maturity.

While both debentures and bonds are debt instruments, the main difference lies in their security. Debentures are unsecured, meaning they are not backed by any specific assets of the issuer. Bonds, on the other hand, can be secured by specific assets, such as property or equipment, which serve as collateral in case of default.

The safety of debentures depends on various factors, such as the financial stability of the issuer and the terms of the debenture agreement. Unsecured debentures carry a higher risk compared to secured debentures, as there is no collateral to recover funds in case of default. It is important to carefully assess the creditworthiness of the issuer before investing in debentures.

Yes, individuals can invest in debentures. They are commonly offered to both institutional and retail investors. However, it is advisable to consult with a financial advisor or conduct thorough research before investing, as debentures may not be suitable for all individuals based on their risk tolerance and investment goals.

If the issuer defaults on debenture payments, the debenture holders may have legal recourse to recover their investment. This can involve taking legal action to enforce the terms of the debenture agreement, which may include seizing the issuer’s assets or initiating bankruptcy proceedings.

Yes, debentures can be traded in the secondary market, providing investors with the opportunity to buy or sell their debenture holdings before maturity. However, the liquidity of debentures in the secondary market may vary depending on factors such as the issuer’s credit rating and market demand.

Yes, debenture interest payments are generally taxable as income. The specific tax treatment may vary depending on the jurisdiction and the individual’s tax status. It is advisable to consult with a tax professional to understand the tax implications of debenture investments.

Debenture terms can be modified, but any changes typically require the consent of both the issuer and the debenture holders. Modifications may be made through a formal process, such as a debenture holder meeting or through written consent, as specified in the debenture agreement.

Some debentures may have a conversion feature that allows the debenture holder to convert their debt into equity shares of the issuer. This conversion is usually subject to certain conditions and terms outlined in the debenture agreement.

A debenture trustee is an independent entity appointed to protect the interests of debenture holders. Their role includes monitoring the issuer’s compliance with the debenture agreement, ensuring timely payment of interest and principal, and taking necessary actions in case of default. The debenture trustee acts as a fiduciary for the debenture holders and helps safeguard their rights.