Question

Ms. Surabhi wants to invest ₹ 2,00,000 in a debt security of a company for ten years. She prioritises the safety of her investment.

Which debt security would you recommend for her investment? Explain any four of its features.

Answer 1

Debt security would be debentures.

Features of Debentures:

• Acknowledgement of Debt: Debentures are a form of borrowed capital where the company acknowledges a debt to the investor.
• Fixed Rate of Interest: Debentures come with a pre-determined interest rate, ensuring regular and predictable income for the investor.
• No Voting Rights: Debenture holders are creditors, not owners of the company, so they do not participate in management decisions.
• Priority in Repayment: In case of winding up, the investment in debentures is repaid before preference and equity shareholders, making it less risky.