Question

Explain the different types of debentures?

Answer 1

These types of debentures are explained as follows:

1. On the basis of repayment:
   1. Redeemable Debentures: These are debentures issued for a fixed period. After this period ends, the company repays the loan to the debenture holders.
   2. Irredeemable Debentures: Also known as perpetual debentures, these remain with the company indefinitely. The company is not required to repay them during its operational lifetime.
2. On the basis of conversion:
   1. Convertible Debentures: Holders of these debentures can convert them into equity shares after a specified time. The terms, including the conversion rate and duration, are mentioned in the original agreement.
   2. Non-Convertible Debentures: These are traditional debentures that cannot be converted into equity shares. They always remain as a form of debt.
3. On the basis of security:
   1. Secured Debentures: These come with a legal claim or charge over the company's assets, which acts as collateral. The charge may be fixed (on specific assets) or floating (on general assets).
   2. Unsecured Debentures: Unlike secured ones, these debentures have no backing of company assets. They are riskier and depend entirely on the company’s creditworthiness.
4. On the basis of transferability:
   1. Registered Debentures: For these debentures, the issuing company keeps a record of the holders' names, addresses, and ownership details.
   2. Bearer Debentures: The company does not have these on file. You can transfer ownership simply by handing them over, and the company does not keep track of the holders.