Bonds and debenture serve the common purpose of debt.
(for bonds click here)
Overall, the principle behind Bonds and Debentures is same: They offer fixed interest rate + principal repaid at the specified date.
Ok then what’s the difference?
first difference: Bonds r issued by a Government and thats the reason risk of default is very less. Other side, Debentures r issued by companies where the risk of default is very high.
Second difference: the different rates of Stamp Duty applied on each of them.
Third difference: The interest rate offered by Debenture is (usually) higher than Government Bonds. Because Government more likely to repay = no need to seduce customers with higher interest rate.
Based on ‘convertibility’ the Debentures are of two types
(for bonds click here)
Overall, the principle behind Bonds and Debentures is same: They offer fixed interest rate + principal repaid at the specified date.
Ok then what’s the difference?
first difference: Bonds r issued by a Government and thats the reason risk of default is very less. Other side, Debentures r issued by companies where the risk of default is very high.
Second difference: the different rates of Stamp Duty applied on each of them.
Third difference: The interest rate offered by Debenture is (usually) higher than Government Bonds. Because Government more likely to repay = no need to seduce customers with higher interest rate.
Based on ‘convertibility’ the Debentures are of two types
1.Convertible debentures |
They can be converted into shares of the company on the expiry of xyz date. |
2.Non-Convertible Debentures |
They cannot be converted into shares. |
- When debenture is converted into shares, it means debt holder becomes an equity holder.
- Both debt vs equity have their own advantages and disadvantages. I’ve discussed it in the earlier article ( for bonds click here).
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