Question

Distinguish between redeemable debentures and irredeemable debentures.

What is the difference between redeemable and irredeemable debenture?

Answer 1

Basis	Redeemable Debentures	Irredeemable Debentures
Meaning	These debentures are repayable by the company after a specific period.	These debentures are not repayable during the lifetime of the company, except upon liquidation.
Repayment of principal	The company promises to repay the principal amount on maturity.	Principal is repaid only at the time of liquidation or winding up of the company.
Tenure	Issued for a fixed period (e.g., 5, 10, or 15 years).	No fixed maturity; the company is not bound to repay within a specific period.
Investor’s benefit	Investors get their money back after the maturity period.	Investors may not get the money back during the company’s life; it may take a long time.
Risk	Lower risk, as there is an assured repayment schedule.	Higher risk as funds are locked for an indefinite period.
Legal status in India	Commonly issued as per the Companies Act.	Rarely issued; the Companies Act, 2013 does not allow the issue of irredeemable debentures.