Question

Explain any three advantages of Debentures from the Debenture holder’s point of view.

Answer 1

The advantages of debentures from the debentureholder’s point of view are as follows:

1. Assured return: The debenture holder has the benefit of receiving interest on the debenture regardless of the company’s profitability. He is confident in his income. He knows what sum of money his debentures will fetch him at the end of a fixed period of time.
2. Investment safety: The debenture is guaranteed for both interest payments and the return of the principal. As a result, a debenture is a safe investment for the investor.
3. Priority in event of liquidation: When the matter of debt payment arises during liquidation, the debenture holder has priority over other unsecured creditors. Debentures are secured loans; holders are not at risk of losing their investment. In the case of liquidation, debenture holders are entitled to repayment before equity or preference shareholders.