Advantages and Disadvantages of Debentures

The Advantages of Debentures are as follows:

1) The holders of the debentures are entitled to a fixed rate of interest. It can be presented as "5% Debenture".

2) Debentures are for those who want a safe and secure income as they are guaranteed payments with high interest rates.

3) They have priority over other unsecured creditors when it comes to debt repayment.

The Disadvantages of Debentures are:

1) Unlike ordinary shares, debenture holders are not considered the owners of the company. They are long term loan capital and holders will have no right to vote at the annual general meeting.

2) Debentures are more secure than stocks, but will lead to a lower rate of theoretical return.

3) It is a type of debt instrument which is not secured by collateral (or physical asset). In case of bankruptcy, the bond holders are given priority over the debenture holders.

* Next: Features of Debentures
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Kelvin Wong Loke Yuen is an experienced writer with a strong background in finance, specializing in the creation of informative and engaging content on topics such as investment strategies, financial ratio analysis, and more. With years of experience in both financial writing and education, Kelvin is adept at translating complex financial concepts into clear, accessible language for a wide range of audiences. Follow him on: LinkedIn.

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