The term debenture is defined in the companies act as, Debenture includes debenture stock, bounds any other

securities of a company whether constituting a charge on the assets of the company or not. A debenture is a document given by a company as evidence of a debt to the holder usually arising out of a loan and most commonly secured by a charge. According to palmer, the world debenture signifies any instrument under seal evidencing a deed, the essence of it being the admission of indebtedness. In other words debenture is a document creating or acknowledging an indebtedness of the company which may or may not be secured. Characteristics of a debenture: 1. It is an instrument in writing. An oral promise in acknowledgement of a debt is not a debenture. 2. It is an acknowledgement of the indebtedness of the company to its holder for the amount stated in it. 3. It is usually under the seal of the company but it is not necessary. A certificate signed by two directors of a company and without bearing the companys seal is a valid debenture. 4. It is one of a series of like debentures. But a single debenture may be issued to one man. 5. It provides for the payment fixed sum with interest of a specified rate by a specified time. But this is not essential because a company may issue perpetual debentures. Section 120 of the companies act 1956 expressly provides for the issue of perpetual or irredeemable debentures w3hich are made payable only in the event of a winding up or some serious default with the company. 6. It is generally secured by a charge, fixed or floating on any part of the companys property or undertaking. But this is, however, not an essential condition because section 2(12) provides that the debentures may or may not constitute a charge on the assets of the company.

Bonds have many characteristics such as the way they pay their interest, the market they are issued in, the currency they are payable in, protective features and their legal status. Bond issuers may be governments, corporations, special purpose trusts or even non-profit organizations. Usually it is the type of issuer or the particular nature of a bond that sets it apart in its own category.

What Are Corporate Bonds?

Corporate bonds (also called corporates) are debt obligations, or IOUs, issued by private and public corporations. They are typically issued in multiples of $1,000 and/or $5,000. Companies use the funds they raise from selling bonds for a variety of purposes, from building facilities to purchasing equipment to expanding their business. When you buy a bond, you are lending money to the corporation that issued it. The corporation promises to return your money (also called principal) on a specified maturity date. Until that time, it also pays you a stated rate of interest, usually semiannually. The interest payments you receive from corporate bonds are taxable. Unlike stocks, bonds do not give you an ownership interest in the issuing corporation.

Bond
Bonds are debt securities issued by the Government and/or joint stock partnerships with a term more than 1 year in order to borrow funds provided that each bond bears the same nominal value and the same wording. These are fixed income securities which accrue interest in regular intervals, giving their holders the rights of a creditor. Bonds with a term more than a year issued by the Undersecretariat of Treasury are called Government Bonds.

Bond Basics: Characteristics Printer friendly version (PDF format) Bonds have a number of characteristics of which you need to be aware. All of these factors play a role in determining the value of a bond and the extent to which it fits in your portfolio. Face Value/Par Value The face value (also known as the par value or principal) is the amount of money a holder will get back once a bond matures. A newly issued bond usually sells at the par value. Corporate bonds normally have a par value of $1,000, but this amount can be much greater for government bonds. What confuses many people is that the par value is not the price of the bond. A bond's price fluctuates throughout its life in response to a number of variables (more on this later). When a bond trades at a price above the face value, it is said to be selling at a premium. When a bond sells below face value, it is said to be selling at a discount. Coupon (The Interest Rate) The coupon is the amount the bondholder will receive as interest payments. It's called a "coupon"

because sometimes there are physical coupons on the bond that you tear off and redeem for interest. However, this was more common in the past. Nowadays, records are more likely to be kept electronically. As previously mentioned, most bonds pay interest every six months, but it's possible for them to pay monthly, quarterly or annually. The coupon is expressed as a percentage of the par value. If a bond pays a coupon of 10% and its par value is $1,000, then it'll pay $100 of interest a year. A rate that stays as a fixed percentage of the par value like this is a fixed-rate bond. Another possibility is an adjustable interest payment, known as a floating-rate bond. In this case the interest rate is tied to market rates through an index, such as the rate on Treasury bills. You might think investors will pay more for a high coupon than for a low coupon. All things being equal, a lower coupon means that the price of the bond will fluctuate more. Maturity The maturity date is the date in the future on which the investor's principal will be repaid. Maturities can range from as little as one day to as long as 30 years (though terms of 100 years have been issued). A bond that matures in one year is much more predictable and thus less risky than a bond that matures in 20 years. Therefore, in general, the longer the time to maturity, the higher the interest rate. Also, all things being equal, a longer term bond will fluctuate more than a shorter term bond.

Issuer The issuer of a bond is a crucial factor to consider, as the issuer's stability is your main assurance of getting paid back. For example, the U.S. government is far more secure than any corporation. Its default risk (the chance of the debt not being paid back) is extremely small - so small that U.S. government securities are known as risk-free assets. The reason behind this is that a government will always be able to bring in future revenue through taxation. A company, on the other hand, must continue to make profits, which is far from guaranteed. This added risk means corporate bonds must offer a higher yield in order to entice investors - this is the risk/return tradeoff in action. The bond rating system helps investors determine a company's credit risk. Think of a bond rating as the report card for a company's credit rating. Blue-chip firms, which are safer investments, have a high rating, while risky companies have a low rating. The chart below illustrates the different bond rating scales from the major rating agencies in the U.S.: Moody's, Standard and Poor's and Fitch Ratings. Read more: http://www.investopedia.com/university/bonds/bonds2.asp#ixzz1mMeWK6Fp

DIFFERENCES BETWEEN BONDS AND DEBENTURES.

Debentures and Bonds Debentures and bonds are similar, but bonds are more secure than debentures. In the case of both, the company pays you a guaranteed interest that does not change in value irrespective of the fortunes of the company. However, bonds are more secure than debentures, and carry a lower interest rate. In the case of bonds, the company provides collateral for the loan. Moreover, in case of liquidation, bondholders will be paid off before debenture holders.

Bond vs Debenture Life is full of surprises, and even more so when it comes to finances. A person having a good income today may face financial crisis in future. To avoid these unforeseen financial crises everyone invests in different instruments that can fetch extra income. There are many options available in the market that can be classified as risky and non risky. It is very well understood that risky options yield higher gains but non risky ones can give very low returns. Debentures and bonds are two such options that can be taken for good returns on ones investment. Debenture is an instrument issued by a company that can be convertible or non convertible into equities. Bonds are issued by companies or by government and can be seen as a loan taken by them to meet their financial needs. These two instruments are basically loan taken from the investor but have very different repayment conditions. Debentures Debentures are issued by a company to raise short to medium term loan needed for expenses or for expansions. Just like equities these can be transferred to anyone, but does not give right of voting in the companys general meetings. Debentures are simply loans taken by the companies and do not provide the ownership in the company. These are unsecured loans as company is not bound to return the principal amount on the maturity. Debentures are of two types convertible and nonconvertible. The convertible debentures are the ones that can be converted into equity shares at a later time. This convertibility provides attraction to the investor but yield lower interest rates. Non convertible debentures does not convert into equity shares thus can yield a higher interest rate. Bonds Bonds are actual contract notes issued by the borrower to pay interest at regular intervals and return the principal on the maturity of the bond. These bonds are issued by the companies for

their expenses and future expansions. The bonds are also issued by the government for its expenses. A bond is seen as loan taken by a borrower from the investor so unlike equity share it does not give stake in the company but he is seen as a lender. These bonds are redeemed at a definite time. These are secured loans and can yield low to medium interest rate. Difference between bonds and debentures Both bonds and debentures are instruments available to a company to raise money from the public. This is the similarity between the two, but on closer inspection, we find that there are many glaring differences between the two. Bonds are more secure than debentures. As a debenture holder, you provide unsecured loan to the company. It carries a higher rate of interest as the company does not give any collateral to you for your money. For this reason bond holders receive a lower rate of interest but are more secure. If there is any bankruptcy, bondholders are paid first and the liability towards debenture holders is less. Debenture holders get periodical interest on their money and upon completion of the term they get their principal amount back. Bond holders do not receive periodical payments. Rather, they get principal plus interest accrued upon the completion of the term. They are much more secure than debentures and are issued mostly by government firms. In Brief: Bonds are more secure than debentures, but the rate of interest is lower Debentures are unsecured loans but carries a higher rate of interest In bankruptcy, bondholders are paid first, but liability towards debenture holders is less Debenture holders get periodical interest Bond holders receive accrued payment upon completion of the term Bonds are more secure as they are mostly issued by government firms

A debenture is an unsecured loan you offer to a company. The company does not give any collateral for the debenture, but pays a higher rate of interest to its creditors. In case of bankruptcy or financial difficulties, the debenture holders are paid later than bondholders. Debentures are different from stocks and bonds, although all three are types of investment. Below are descriptions of the different types of investment options for small investors and entrepreneurs. Debentures And Stocks When you buy stocks, you become one of the owners of the company. Your fortunes rise and fall with that of the company. If the stocks of the company soar in value, your investment pays off high dividends, but if the stocks decrease in value, the investments are low paying. The higher the risk you take, the higher the rewards you get. Debentures are more secure than stocks, in the sense that you are guaranteed payments with high interest rates. The company pays you interest on the money you lend it until the maturity period, after which, whatever you invested in the company is paid back to you. The interest is the profit you make from debentures. While stocks are for those who like to take risks for the sake of high returns, debentures are for people who want a safe and secure income. Debentures And Bonds Debentures and bonds are similar, but bonds are more secure than debentures. In the case of both, the company pays you a guaranteed interest that does not change in value irrespective of the fortunes of the company. However, bonds are more secure than debentures, and carry a lower interest rate. In the case of bonds, the company provides collateral for the loan. Moreover, in case of liquidation, bondholders will be paid off before debenture holders. A debenture is more secure than a stock, but not as secure as a bond. In case of bankruptcy, you have no collateral you can claim from the company. To compensate for this, companies pay higher interest rates to debenture holders. Additional Help All investments including stocks, bonds, and debentures, carry an element of risk. If you are unsure of the investment options that are best for your business, then you can ask a small business consultant who will guide you to the best investment options available to you. Investing wisely today can pay heavy dividends tomorrow. Do as much research as possible on the company you're investing in, whether that investment is in stocks, bonds, or debentures. Research is a sure fire way to reduce risk and increase profits.

Difference between debenture and bond According to companies act 1956 India Debenture includes stocks, bond and any other securities of company whether constituting a charge on asset or not.

 Generally private sector companies issue debentures and public sector and financial institutions issue bonds. Bond is a long term debt instrument that promises to pay a fixed annual interest over a specific period. Debentures may be convertible into equity shares while bonds are not. Debentures may be redeemed in installment.

A debenture is defined as a certificate of acceptance of loans which is given under the company's stamp and carries an undertaking that the debenture holder will get a fixed return (fixed on the basis of interest rates) and the principal amount whenever the debenture matures. In finance, a debenture is a long-term debt instrument used by governments and large companies to obtain funds. It is defined as "a debt secured only by the debtor s earning power, not by a lien on any specific asset."[1] It is similar to a bond except the securitization conditions are different. A debenture is usually unsecured in the sense that there are no liens or pledges on specific assets. It is, however, secured by all properties not otherwise pledged. In the case of bankruptcy debenture holders are considered general creditors. The advantage of debentures to the issuer is they leave specific assets burden free, and thereby leave them open for subsequent financing.Debentures are generally freely transferrable by the debenture holder. Debenture holders have no voting rights and the interest given to them is a charge against profit.