In finance, a debenture is a type of long-term debt instrument issued by a company or organization to raise capital. Essentially, a debenture is a bond or promissory note that represents a company’s promise to repay a specified amount of money at a fixed interest rate over a specified period of time.
Unlike other types of debt instruments, such as secured bonds or loans, debentures are typically unsecured, meaning that collateral do not back it. This means that if the company defaults on the debenture, the debenture holder may have limited recourse to recover their investment.
Companies use debenture as a way to raise funds for long-term projects or investments. They may be issued in a variety of denominations and can be traded on financial markets like stocks or other bonds. Debentures may also be convertible, meaning that they are exchangable for stock or equity in the issuing company at a predetermined price.
In summary, a debenture is a long-term debt instrument issued by a company or organization to raise capital. It represents a promise to repay a specified amount of money at a fixed interest rate over a specified period of time and is often used to fund long-term projects or investments.
Debentures are often used by companies and organizations that do not have sufficient assets or creditworthiness to obtain traditional bank loans or other forms of financing. They are also used by companies that want to diversify their sources of financing and reduce their dependence on bank loans.
Investors in debentures typically include institutional investors, such as pension funds, insurance companies, and mutual funds, as well as individual investors looking for fixed-income investments. Debentures are generally considered to be less risky than equity investments but more risky than secured debt instruments, such as bonds or mortgage-backed securities.
