CandleFocus Glossary Editor
Debentures are a form of debt that is issued by companies and governments to raise funds for long-term investments. Unlike loans, debentures are not usually backed by any form of collateral and are normally given a longer repayment term – often up to 10 years or more. The risk involved in these types of loans is determined solely by the creditworthiness and reputation of the issuer.
Debentures are often used when a business needs to raise capital quickly and doesn’t want to offer equity shares. Since debentures are a form of debt and are issued with fixed rates of interest, they offer a more secure method of investment than equity.
Debentures come in two basic types – convertible and non-convertible. Convertible debentures are debentures which can be converted into common stock or other types of securities at the holder’s discretion. Non-convertible debentures are more commonly used, as they provide a more secure way for the issuer to borrow money.
Debentures have several advantages for both investors and companies. For investors, debentures offer a safer way to invest since they are backed by the reputation of the issuer and have a fixed rate of interest. Companies benefit from issuing debentures as there is no need to give away a portion of the business, since debentures are not equity shares.
Debentures can also provide companies with tax benefits in some cases. Interest payments on debentures can be deducted from taxable income, which can be a significant benefit for companies.
Before investing in debentures it is important to analyze the creditworthiness of the issuer carefully. Companies that are in a weak financial position and have a poor credit rating will be much more risky investments as compared to companies with a strong financial record and good credit rating.
Debentures can be a great way to raise capital for a business or government, as long as the issuer has a strong credit rating and the interest rate is attractive for investors. Investors who understand the risk involved in investing in debentures should carefully analyze the issuer’s creditworthiness before investing.
Debentures are often used when a business needs to raise capital quickly and doesn’t want to offer equity shares. Since debentures are a form of debt and are issued with fixed rates of interest, they offer a more secure method of investment than equity.
Debentures come in two basic types – convertible and non-convertible. Convertible debentures are debentures which can be converted into common stock or other types of securities at the holder’s discretion. Non-convertible debentures are more commonly used, as they provide a more secure way for the issuer to borrow money.
Debentures have several advantages for both investors and companies. For investors, debentures offer a safer way to invest since they are backed by the reputation of the issuer and have a fixed rate of interest. Companies benefit from issuing debentures as there is no need to give away a portion of the business, since debentures are not equity shares.
Debentures can also provide companies with tax benefits in some cases. Interest payments on debentures can be deducted from taxable income, which can be a significant benefit for companies.
Before investing in debentures it is important to analyze the creditworthiness of the issuer carefully. Companies that are in a weak financial position and have a poor credit rating will be much more risky investments as compared to companies with a strong financial record and good credit rating.
Debentures can be a great way to raise capital for a business or government, as long as the issuer has a strong credit rating and the interest rate is attractive for investors. Investors who understand the risk involved in investing in debentures should carefully analyze the issuer’s creditworthiness before investing.