Finance Learners

Debenture is a liability instrument with a fixed rate of interest, and the holders of debenture are considered as creditors of the limited company. Interest on debentures is calculated at a fixed rate of interest on the face value (not on the issue price), and is charged to Profit and Loss Account. Note that such interest must be paid to the debenture holders even if the company is not making a profit or incurring losses. Nature of Debentures Debentures are long-term debt instruments issued by companies, typically with a fixed interest rate and a set maturity date. They are a key tool for companies looking to secure funding without diluting ownership, as debentures do not confer any equity rights to the holders. Instead, debenture holders act as creditors, and their claims on the company are generally subordinate to other types of liabilities such as bank loans or trade payables. Debentures are classified as unsecured or secured. Secured debentures are backed by a specific asset or se...

Redemption of debentures refers to the process by which a company repays the amount it borrowed through the issuance of debentures. Debentures, as debt instruments, allow companies to raise capital from investors by offering a fixed interest payment over a specified period, with the promise to repay the principal sum at maturity. When the time arrives for the company to repay the borrowed amount, it must redeem the debentures, effectively settling its debt obligations. The redemption process is an important event in the company’s financial lifecycle, as it directly impacts the company’s capital structure and cash flow. Understanding the mechanics of debenture redemption is essential for both the company and its investors, as it outlines how the company fulfills its borrowing obligations and how investors will be repaid. Why is Redemption of Debentures Necessary? The redemption of debentures is necessary for the company to meet its debt obligations and reduce its liabilities once the ...

Debentures are an essential financial instrument used by companies to raise capital, primarily by borrowing funds from investors, without offering equity in return. These instruments are widely used for both long-term and short-term financing. The advantages and disadvantages of debentures, like any financial instrument, must be considered carefully by both the issuing company and potential investors. Debentures come with numerous benefits that make them attractive to certain investors and companies. However, they also carry certain drawbacks that should be understood before making any investment decisions or issuing debentures. Advantages of Debentures One of the primary advantages of debentures is that they offer a fixed rate of interest to the holders. This fixed interest is one of the key reasons why debentures are popular among risk-averse investors seeking stable returns. Debenture holders are entitled to a predetermined rate of interest, which is typically stated at the time o...

Debentures are a widely used financial instrument that allows companies to raise funds by borrowing from investors, without giving up ownership or equity in the business. A debenture represents a loan to the company, which agrees to repay the loan along with interest after a specified period. In exchange for the funds, the company promises to pay interest regularly, typically at a fixed rate, and repay the principal amount once the debenture matures. Debenture holders are creditors, not shareholders or owners, of the company, meaning they do not have ownership rights in the business but are entitled to receive interest payments and the repayment of principal. Debentures are essential to understanding how corporations finance their operations and manage capital. The features of debentures are central to how they function within a company’s financial structure and affect both the company’s financial health and the rights and obligations of the debenture holders. These features—ranging f...