Debentures

APR 3

Preliminary   > Economic Development   >   Miscellaneous   >   Basics

About Debentures:

  • A debenture is a type of debt instrument unsecured by collateral.
  • Since debentures have no collateral backing, debentures must rely on the creditworthiness and reputation of the issuer for support.
  • Both corporations and governments frequently issue debentures to raise capital or funds.
  • Similar to most bonds, debentures may pay periodic interest payments called coupon payments.
  • They usually have a term greater than 10 years.
  • Debentures are advantageous for companies since they carry lower interest rates and longer repayment dates as compared to other types of loans and debt instruments.

Prelims Question

The term “Debentures” refer in general to:
(a)Long term debt instruments
(b)Long term equity investments
(c)Stocks of multinational corporation
(d)Government securities that invest in infrastructure projects

Answer to the Prelims Question
 

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