Debentures: An Insight
Debentures are a type of debt instrument that companies and governments use to raise funds. Unlike secured bonds, debentures are not backed by collateral. Instead, they rely on the issuer’s creditworthiness and reputation.
Typically, debentures have a long-term maturity, often exceeding 10 years. They can offer attractive returns, though the risk is slightly higher due to the lack of backing assets. Some debentures also have the option to convert into equity shares, providing additional investment flexibility.
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Understanding Debentures
Unsecured Debt Instruments
Debentures are unsecured debt instruments issued by companies or governments to raise capital. Unlike bonds, debentures are not backed by collateral and rely on the issuer’s creditworthiness.
Long-Term Investment
Typically, debentures have longer maturity periods, often exceeding 10 years. They offer fixed interest payments and can be an attractive option for investors seeking steady returns over the long term.
Advantages of Debentures
Regular Income
Debentures provide regular interest payments, making them a reliable source of income. This is particularly beneficial for investors looking for predictable returns.
Flexibility
Some debentures offer the option to convert into equity shares, providing investors with flexibility and the potential for capital appreciation.
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