Bonds and Debentures
Bonds and Debentures fall under the category of Fixed Income securities.Fixed-Income securities are debt instruments that pay a fixed amount of interest to investors. The interest rate and tenure of the instruments are decided at the time of investment itself. The interest payments are either made semi-annually or annually. The principal invested is returned to the investor at maturity.These instruments are called fixed income securities because they provide periodic income payments at a predetermined fixed interest rate. These instruments allow governments, companies, and other types of issuers to borrow money from investors. Any borrowing of money is debt.
Bonds :
A Bond is a written agreement or contract between an issuer of bonds and the buyer of bonds that requires the issuer to pay the buyer the bond’s face value plus the stated amount of interest.As per RBI website a bond is a debt instrument in which an investor loans money to an entity (typically corporate or government) which borrows the funds for a defined period of time at a variable or fixed interest rate and Pvt sector
Bonds are generally issued in India by Central and State Governments, Municipalities and Companies in the Public Sector and at times pvt Companies.. Bonds are normally issued in the form of Promissory notes. The bond is a debt security, under which the issuer owes the holders a debt and is obliged to pay them interest or to repay the principal at a later date, termed the maturity date. The bonds that are issued by the government are known as Govt bonds or G-Secs.
Government bonds
Features: Bonds are of varying maturities and interest rate varies according to tenure. Interest is usually payable at fixed intervals semi-annually, annually or sometimes monthly. Very often the bond is negotiable, that is, the ownership of the instrument can be transferred in the secondary market. This means the bond is highly liquid on the secondary market.
Debentures
Debentures are issued as secured instruments or as unsecured instruments. Secured debentures will be backed by collateral security of tangible assets like land building etc.
Debentures can be issued as convertible debentures or Non-Convertible debentures. Convertible debentures will be converted into equity shares of the company at the end of the tenure of the debentures at a predetermined price.
Features :
- Debentures are instruments of debt, which means that debenture holders become creditors of the company
- The date of redemption and amount of repayment mentioned on it.
- Debentures have a fixed rate of interest and such interest amount is payable yearly or half-yearly
- Debenture holders do not get any voting rights.
- The interest payable to these debenture holders is a charge against the profits of the company.