types of debenture

The name must show on the front side of the bond and also in the company books. (4) From recording point of view. Which are given below: Convertible debentures are the ones that can be converted into equity shares at a later time. There are various types of debentures that a company can issue, based on security, tenure, convertibility etc. They are redeemed either on the liquidation of the company or as per the terms of the issue when the company chooses to pay them off to reduce their liability by issues a due notice to the debenture holders beforehand. From the point of view of the investors, they offer a definite security and so appeal to the cautious investors. Some of the major types of debentures are as follows: 1. Otherwise, the interest and principal will go to the previous holder because the company will pay to the one who is registered. Such debentures are very popular these days, as they provide liquidity, safety, capital appreciation and assured return to the investors. Usually, they will be offered a higher return as they undertake more risk. So, they can be transferred by mere delivery. Need not get surprised, for compensating against no interest, companies issue them at a discounted price which is less compared to the face value of it. These debentures are issued for a specified period of time. Debentures may be of the following kinds: Unsecured Debentures have no security for their repayment. They are also called as naked debentures. The debentures can either be redeemable or irredeemable: a. All other debentures with a specified rate of interest are specific rate debentures which are just like a normal debenture. 2. A short and quick guide on Debentures. Debentures as the source of capital have many advantages. Private Placement of Shares. Types of Debentures. In India, debentures have necessarily to be secured. Under floating charge, the entire assets of the company are given as charge to the debentures. A company may issue the following types of debentures: These debentures are those which are secured either on particular assets of the Company called fixed charge or on all assets of the Company in general, called a floating charge. It represents debt. On maturity, the principal sum is paid to the bearers. A secured debenture is secured by the charge on some asset or set of assets which is known as secured or mortgage debenture and another when it is issued solely on the credibility of the issuer is known as the naked or unsecured debenture. Debentures are also known as a bond which serves as an IOU between issuers and purchaser. Types of Debentures. When the full amount of debenture is convertible into shares, such debentures are called ‘Fully Convertible Debentures’. The long term finance may be raised by issuing of debenture. The conversion may take place at one time or in installments. Naked, unsecured or simple debentures are issued with merely a promise of payment, without any security by way of charge on the assets of the company for the payment of interest or capital; ii. A debenture is a kind of document acknowledging the money borrowed containing the terms and conditions of the loan, payment of interest, redemption of the loan, the security offered (if any) by the company. Other types of debentures. Registered debentures – The details of debenture holders, the number of debentures held by each debenture holder is entered in the debenture ledger maintained by the company. performance, security, priority, convertibility and record. Thus, a bearer debenture is a ‘negotiable instrument’. Their state will always remain of debt and will not become equity at any point in time. – Such debentures are not convertible into shares. It follows that debentures can be made perpetual, i.e., the loan is repayable only on winding up or after a long period of time. Types of Debentures. Types of Debentures – Classified on the Basis of Security, Convertibility, Records, Repayment and Priority, Types of Debentures – Secured or Mortgage Debentures, Unsecured Debentures, Registered Debentures, Bearer Debentures, Redeemable Debentures and a Few Others. There are various forms of debentures which a company can issue depending upon its requirement. At the time of liquidation or on the appointment of liquidator by the debenture holders, the charge becomes fixed. Hence, they are also called “perpetual debentures”. ? At the time of liquidation, the claims of debenture holders can be settled by selling these assets. Fully Convertible Debentures – When the full amount of debentures is convertible into shares. If a company issues debentures, details of debenture holders are maintained in a debenture holder register. Classification of Debentures: Debentures can be classified in different ways. Irredeemable debentures are those debentures which are not repayable by the Company during its life time. Secured or Mortgage Debentures 6. In this case, if the company does not have funds to repay, that particular asset will be sold to pay the loan. Names and addresses of the holders of such debentures are recorded in the Register of Debentureholders. Based on Performance. Various types of bonds and debentures are explained in hindi. They are debentures which are secured by a charge on the assets of the company. In case of a fixed charge, the assets cannot be sold, except for redemption of debentures. Two popular types of them are: Convertible Debentures. On the expiry of that specified time the company has the right to pay back the debenture holders and have its properties released from the mortgage or charge. The debentures have interest coupons attached to them. Debentures may be different types depending upon the terms and conditions of their issue. A debenture is a type of bond that a government or corporation can use to raise capital. i. Secured or Mortgaged Debentures 3. Most of the debentures are generally of this type. The security or charge may be on a specified fixed asset or floating charge on all assets of the company. i. They are also known as a subordinated loan, subordinated bonds, subordinated debt or junior debt. Different types of debenture classified from various points of view are as follows: 1. The interest and the principal amount on such a debenture is payable upon presentation and delivery of the coupons and debentures. Debentures can be classified into different types on the basis of the terms and conditions of issue: i. In this video, you can find a detailed explanation of the debentures and its salient features. The specified rate may either be fixed or floating. Governments and companies use debentures to make loans. In the case of puttable debentures, the option lies with the investors for early redemption. They carry relatively higher rate of interest. Debentures can be of following types: Redeemable and Irredeemable Debentures Redeemable debentures are those which can be redeemed or paid back at the end of a specified period mentioned on the debentures or within a specified period at the option of the company by giving notice to the debenture holders or by installments as per terms of issue. Convertible Debentures 9. The interest on bearer debentures is paid by means of attached coupons. There are two types of debentures in the US – convertible and non-convertible. Lending institutions can exercise their right as debentureholders, if the company does not pay loan and the principal security falls short. This website includes study notes, research papers, essays, articles and other allied information submitted by visitors like YOU. Fully convertible debentures are redeemed by issuing equity or preference shares, instead of making any payment. Generally, debentures are redeemable. These managers can opt to sell the funds for profit, or create capital gains or loss to raise cash for shareholders who may want to part with their b… The charge may be fixed, i.e., on a particular asset, or it may be floating, when it does not fasten on any asset until it crystallises. A) Naked or Unsecured Debentures. They are those debentures in respect of which the names and the addresses of debentures holders and the particulars of the debentures held by them are not entered in the register of debentures holders maintained by the company. so are the companies legally bound to redeem the invested amount back to the investor. Unsecured or Naked Debentures 7. Non-Convertible Debentures 10. Individuals who hold company debentures like convertible … Lending institutions can exercise their right as debentureholders, if the company does not pay loan and the principal security falls short. Saturday, May 16, 2015 AMITY UNIVERSTIY RAJASTHAN 2 For example, a debenture with face value of Rs.100 is issued at a discount of 50%. As such, ordinarily these debentures are not repaid during the existence of the company. 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. Registered debentures holders are those whose name appears in the debentures ledger maintained by the company. Bearer debentures are payable to the bearer and are transferable by mere delivery. The debentures are transferable by execution of a transfer deed. Such types of debentures are secured by floating charges on all the assets of the company. These are debentures that are backed by some charge on some assets of the company. The debentures are of the following types: They are those debentures in respect of which the names and addresses of the debenture holders and the particulars of the debentures held by them are entered in register of debenture holders maintained by the company. (a) Convertible Debentures – These debentures offer the investors an option to convert their debentures into shares at a stated rate of exchange after a certain period. In which context, you are asking this question whether finance related or cash flow related?? Registration or Records 3. Before publishing your Articles on this site, please read the following pages: 1. i. Features of Debenture: Type of Loan: A debenture is the type of loan because doesn’t have to share the ownership of the business with the debenture holders. The redemption may be in lump sum or installments. Registered debentures: These debentures are registered with the company and the amount is payable only to those debentures holders whose names are registered with the company. They can also include a security that will guarantee the investment even if it defaults and there are two different ways for the debenture to be secured. Fixed charge is made on a specific asset and the company cannot sell or transfer such asset. When any particular or specified property of the company is offered as security to the debenture-holders and when the company can deal with it only subject to the prior right of the deben­ture-holders, fixed charge is said to have been created. – The debenture holders of irredeemable debentures have right to receive interest from the company, during its life time. This is the one we’ve already mentioned, where assets are leveraged for security against a loan. Like shares, debentures can be issued at par, discount, and at a premium. The debentures can be divided into various types on the basis of security, performance, priority, convertibility and Records. The debenture-holders cannot demand payment as long as the conn any is a going concern and does not make default in payment of interest. Thus, convertible debentureholders can change their status from lenders and debentureholders to shareholders after a particular duration. The person in possession of the debentures is its owner. Such debentures are not very common these days, so much so that, unless otherwise stated, a debenture is presumed to be secured. The difference between face value and issue price is the total amount of interest related to the duration of the debentures. the main types of debentures are as under. Debenture holders can’t force the company to redeem these debentures. (2) Redeemable and Irredeemable Debentures: If the amount of debentures is to be repaid after a specific period of time, such debentures are called redeemable debentures. The Transfer of such debentures requires the execution of a proper transfer deed. There are many types of debentures which a company can issue. Actively managed bonds:As the name suggests, actively manage funds are managed by the fund managers who trade the funds in accordance with the aim of the investment. They are also called as ‘Naked’ Debentures. There is no collateral behind it, meaning there is no asset for the lender to seize if the borrower defaults on the loan. On the other hand, if the charge is not on any particular asset of the company but on the assets in general, it is called floating charge. The charge on assets of company is of two types – (i) Fixed charge (ii) Floating charge. Such debentures are not freely transferable. The floating interest rate is generally linked with the bank rate. Regular fixed rate of interest payable by the company to the debenture-holders even out of capital if profits are not available adds to the merits of debentures. – Second debentures are those which are paid after the redemption of first debentures. In India, debentures issued by companies must necessarily be secured. (a) Registered Debentures – These debentures are not transferable by mere delivery. During the initial phase, no interest is charged. Secured and Unsecured Debentures. Bearer debentures – The Company does not maintain any records of the names and addresses of persons holding such debentures. Under the floating change, at the time of liquidation, the debenture holders get the right of payment after paying the preferential creditors but before payment to unsecured creditors. Depending on the presence of coupon rates, Debentures are classified as follows: Zero - Coupon Rate Debentures. This enables the company to know the owner of such debentures, so that it can pass on to them, the benefits of holding the debentures. Redeemable debentures are repaid during the life of the company as per the terms of the issue. Debentures are a common type of long-term loans raised by a company. Coupon Rate 5. Redeemable debentures are those the repayment of the principal by the company on which is to be made on a specified date, or by instalments either at company’s option or at fixed intervals as long as the company is a going concern; ii. Types of Debentures: 7 Major Types of Debentures, Types of Debentures – Bearer and Registered Debentures, Redeemable and Irredeemable Debentures, Convertible and Non-Convertible Debentures and a Few Others, Types of Debentures – Registered Debentures, Unregistered Debentures, Unsecured Debentures, Secured Debentures, Redeemable Debentures and a Few Others, Types of Debentures – On the Basis of Security Given, Registration, Conversion, Priority in Payment and Redemption. The charge on the assets of the company may be fixed charge or a floating charge. (a) Specific Coupon Rate Debentures – When the interest rate on debentures is pre-determined at a specific rate, that is the coupon rate which may be fixed or floating, the debentures are classified as specific coupon rate debentures. They are necessarily redeemed at the end of maturity period. Non-convertible debentures cannot be exchanged for shares, and the debenture-holder cannot change his status to a shareholder. This means that there is no specific time of redemption of these debentures. They are debentures which are not secured by any assets of the company irrespective of the interest or principal. When at the time of issue of debentures the assets of company are mortgaged in favour of debenture holders, such debentures are known as secured debentures. Records 4. Classification in Terms of Security: When the floating charge crystallizes, the debenture-holders have a right to be paid out of the sale proceeds of the assets subject to the right of the preferential creditor but prior to making any payment to unsecured creditors. On the Basis of Registration or Transferability: They are also called ‘Bearer’ debentures. Types of Debentures. Secured and Unsecured Debentures. A debenture is a type of unsecured debt. These assets may be bills receivable, stocks, and Book Debts; it creates a charge upon them in favor of debentures holder is against other creditors in case of failure on the part of the company. It represents debt. Share Your PPT File, Types of Debentures –  Registered Debentures, Bearer Debentures, Redeemable Debentures, Perpetual or Irredeemable Debentures, Secured Debentures and a Few Others, Types of Debentures – On the Basis of the Terms and Conditions of Issue, – Bearer and Registered Debentures, Redeemable and Irredeemable Debentures, Convertible and Non-Convertible Debentures and a Few Others, – On the Basis of Security Given, Registration, Conversion, Priority in Payment and Redemption. There is no need of any registration of transfer. These debentures carry a relatively low rate of interest. Types of debentures: 1. Types of Debentures Debentures on the basis of Registration 1. 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