Question

What are the various kinds of Debentures?

Answer 1

The debenture is a document issued by the company for acknowledging the loan from the public.

Debentures are classified into different categories on the basis of:

1. Convertibility of the Instrument
2. Security of the Instrument
3. Redemption ability; and
4. Registration of Instrument.

1. On the basis of convertibility:

• Non-Convertible Debentures: These instruments cannot be converted into equity shares.
• Partly Convertible Debentures: Apart from these instruments are converted into equity shares.
• Fully Convertible Debentures: These are fully convertible into equity shares.
• Optionally Convertible Debentures: The investor can have the option to either convert the debentures at a price decided by the issuer or agreed upon at the time of issue.

2. On the basis of Security:

• Secured Debentures: These instruments are secured by a charge on the fixed assets of the issuer company.
• Unsecured Debentures: These instruments are unsecured against the assets.

3. On the basis of Redeemability:

• Redeemable Debentures: It refers to the debentures which will be redeemed in the future.
• Irredeemable Debentures: It is a debenture, in which no specific time is specified by the companies to pay back the money.

4. On the basis of Registration:

• Registered Debentures: These are issued in the name of a particular person, who is registered by the company.
• Bearer Debentures: These are issued to the bearer and are negotiable instruments, and are transferred by mere delivery.