Question: What Are Redeemable And Irredeemable Debentures?

Why debentures are issued at discount?

Unlike shares, a company can issue debentures at a discount which is called “Debentures issued at Discount”.

Giving debentures at a discount increases the capital of the company with respect to the less increase in the Cash for it..

What is debenture and its features?

The most salient features of Debentures are as follows: A debenture acknowledges a debt. It is in the form of certificate issued under the seal of the company (called Debenture Deed). It usually shows the amount & date of repayment of the loan. It has a rate of interest & date of interest payment.

What are the two types of debenture?

Companies use debentures when they need to borrow the money at a fixed rate of interest for its expansion. Secured and Unsecured, Registered and Bearer, Convertible and Non-Convertible, First and Second are four types of Debentures.

What is Debenture simple words?

A debenture is a type of debt instrument that is not backed by any collateral and usually has a term greater than 10 years. Debentures are backed only by the creditworthiness and reputation of the issuer. Both corporations and governments frequently issue debentures to raise capital or funds.

Is fixed deposit a debenture or loan?

Key Takeaways. Fixed deposits are a type of product offered by a bank with a fixed interest payout. Debentures are unsecured debt instruments issued by businesses to raise capital funding, and with more complex structuring provisions than fixed deposits.

Why do companies issue debentures?

Why do company issue debentures, when they can borrow money from Bank. … ex- borrowed fund can be used only for capital expenditure or they limit companies ability to raise additional funds till this loan is repaid. etc. Thus most companies in order to avoid this go for loan from general public i.e Debenture.

What do you mean by bearer debenture?

A bearer debenture is an unregistered unsecured bond. The issuing corporation does not keep a record of the purchaser’s name, nor is the owner’s name listed on the debenture. The owner cannot get a replacement debenture if the original one is lost or stolen.

How do you calculate irredeemable debt?

What is the post-tax cost of debt of these irredeemable debentures? The formula to calculate the post-tax cost of debt is: I * (1-T) / Market Value x 100%, where I is the Annual interest and T is the tax rate.

What are the characteristics of debenture?

Characteristics of Debenture1.1 Written promise.1.2 Company Seal.1.3 Borrowed Funds.1.4 Maturity Period.1.5 Claim in Income.1.6 Priority Claim on Assets.1.7 No Controlling Power.1.8 Fixed Rate of Interest.More items…•

What is difference between bond and debenture?

Generally, the lender also receives a fixed rate of interest during the duration of the bond’s term. Debentures, on the other hand, are unsecured debt instruments that are not backed by any collateral. Rather, the good credit ratings of a company issuing a debenture act as the underlying security.

Who is a debenture holder?

A person having the debentures is called debenture holder whereas a person holding the shares is called shareholder. A shareholder subscribes to the shares of a company. … On the other hand, debenture-holders are the subscribers to debentures. Debentures are part of loan.

Are debentures safe?

After paying interest for some years, the company regularly defaulted in meeting its obligation towards the debenture-holders. … Hence, the moral of the story is that, an investor should not be misled by the fact that when a debenture is secured against the assets of the company means it is a safe and secure investment.

Can a company issue irredeemable debentures?

Hence, from the above provisions, it can be interpreted that a company can not issue secured irredeemable debentures, simply because of the reason that in case of irredeemable debentures – the date of redemption is not fixed at all.

What are debentures used for?

A debenture is an instrument used by a lender, such as a bank, when providing capital to companies and individuals. It enables the lender to secure loan repayments against the borrower’s assets – even if they default on the payment. A debenture can grant a fixed charge or a floating charge.

What is the purpose of a debenture?

A debenture is a loan agreement in writing between a borrower and a lender that is registered at Companies House. It gives the lender security over the borrower’s assets. Typically, a debenture is used by a bank, factoring company or invoice discounter to take security for their loans.

How do I buy debentures?

You need to have the usual trading and a demat account to buy a non convertible debenture (NCD). The process to buy a NCD is the same as that for a share. You log into your trading account or ask your broker to buy you an NCD on your behalf. The manner in which you buy and the brokerage is the same as that for shares.

What is a redeemable debenture?

Redeemable debentures carry a specific repayment date. The issuer is bound to repay such loan by a predetermined date to the original lender or debenture holder. Due to this clause, companies can attract more investors with a redeemable debenture. That’s because investors are more assured of getting repaid.

What is non redeemable debenture?

Non-redeemable or Irredeemable Debentures: These debentures are not redeemable during the life time of the company. They can be redeemed only at the time of dissolution of the company. In India Irredeemable Debentures cannot be issued. Maximum time period for which debentures can be issued in India is 20 years.

What is an example of a debenture?

The definition of a debenture is a long-term bond issued by a company, or an unsecured loan that a company issues without a pledge of assets. An interest-bearing bond issued by a power company is an example of a debenture.

Are debentures transferable?

Debentures are freely transferable by the debenture holder. Debenture holders have no rights to vote in the company’s general meetings of shareholders, but they may have separate meetings or votes e.g. on changes to the rights attached to the debentures.

Is a debenture an asset?

The debenture is sometimes called a ‘floating charge debenture’ and includes all company assets. … The debenture secures the assets for the lender should the company fail and in liquidation, the charge becomes ‘fixed’ on the asset’s value at that point in time.