Here is the explanation of what are the debentures, what are the types of the debentures, and in what ways the debentures are issued so friends let's get started in this article we are going to learn the meaning of the debentures, features of debentures what are debentures and its types and types of issue debentures.
Suppose a company wants to raise funds from the public but at the same time the company doesn't want to divide its own then the debentures are the best option for them to raise long term depth capital the debentures are the long-term fixed interest-bearing security issued by the company to raise funds it is a written acknowledgment of money borrowed by the company promising to repay it at a future date it is a document containing the terms and conditions like rate of interest repayment time securities offer etc.
Now come let's understand the features of debentures at the venture is a loan document which evidences our loan made to the company It is fixed interest-bearing security where interest fall due on a specific date payment of interest at a fixed rate is immaterial of the profit level of the company that is interest is paid to the debenture holders even if there is a loss in a particular year it can be bought or sold through the stock exchange at a price above or below its face value the original sum is repaid at a future date or it is converted into shares or other debentures types of debentures on the basis of security convertibility negotiability permanence and priority debentures are divided into various types
Secured debentures other debentures which are secured by a charge upon some or all the assets of the company the charge can be fixed charge or floating charge otherwise they are known as unsecured debentures
Convertible debentures as the name suggest convertible debentures are the debentures that are converted into equity shares after a certain time.
Non-convertible debentures are the debentures that cannot be converted into shares and future they can only be repaid the destroyed debentures the debentures which are payable toward the gesture holder whose name address and other details are recorded in the register of the company they are called as register debentures
Bearer debentures meaning:- Bearer debentures are the debentures that can easily be transferable by mere delivery of redeemable debentures these debentures are repayable after a certain time as per the terms of the issue
Redeemable debentures are the debentures that are not repayable during the lifetime of the company they are only repaid at the time of liquidation of the company first
Mortgage debentures these debentures are payable first out of the property charged
Second mortgage debentures are the debentures that are payable after settling the claims of first mortgage debentures
Types of issues of debentures.
Debentures can be issued for cash for the kind that is consideration other than cash and as collateral security when the debentures are issued for cash there can be three possibilities they can be issued at par premium and discount.
When the issue price of debenture is equal to its face value then they are said to be issued at par but when the price of the debenture is greater than its face value then they are said to be issued at a premium
Suppose the debenture of rupees 10 shoots at rupees 12 then the excess price that is rupees 2 will be its premium lastly if the debenture is issued at a price lower than its nominal value then they are said to be issued at a discount
Suppose the issue cries of the debentures are rupees 8 but its face value is rupees10 then they are said to be issued at a discount when rupees 2 will be the discount in this case the debentures are also issued to vendors for consideration other than cash to settle their claims
Finally, the debentures can also be issued as collateral security now you must be wondering what the term collateral security means collateral security is nothing but additional security given for a loan usually in case of loans acquired from a bank or insurance company then it may have to issue debentures to the lender organization as collateral security against the loan in this situation the bank or insurance company has absolute right over the debenture still the time the loan is repaid when the loan is repaid the lender company has to release the debentures but if it is not paid on the date is specified the lender organization has the right to retain the debentures and realize them accordingly.