DEBENTURES OR BONDS AND ITS TYPES

Debentures and bonds are both types of debt securities that companies and governments issue to raise funds. They are essentially a promise to pay back the principal amount borrowed along with interest over a certain period of time.

Debentures are unsecured debt instruments that are backed only by the creditworthiness of the issuer. They do not have any collateral backing, and therefore carry a higher risk than secured bonds. There are various types of debentures, including:

1. Convertible Debentures: These can be converted into equity shares of the issuing company at a predetermined price and time.
2. Non-Convertible Debentures: These cannot be converted into equity shares and are therefore a pure debt instrument.
3. Secured Debentures: These are backed by some form of collateral, such as assets of the issuing company.
4. Unsecured Debentures: These are not backed by any collateral, and are issued based solely on the creditworthiness of the issuer.

Bonds, on the other hand, are debt securities that are backed by collateral, such as a company’s assets or government revenues. Bonds are generally considered less risky than debentures because of this collateral backing. There are various types of bonds, including:

1. Government Bonds: These are issued by governments to raise funds for various projects and initiatives.
2. Corporate Bonds: These are issued by companies to raise funds for expansion, research and development, or other business activities.
3. Municipal Bonds: These are issued by local governments to raise funds for infrastructure projects like highways, bridges, schools, and hospitals.
4. Zero-Coupon Bonds: These do not pay any interest but are issued at a discount to their face value, and the holder receives the full face value of the bond at maturity.

Overall, both debentures and bonds are important debt securities that investors can use to diversify their portfolios and generate income

 

 

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