The word Debenture is derived from a Latin word ‘debere’ which means to borrow. A debenture is issued in the form of a certificate under the seal of a company and containing a contract for the repayment of the principal sum after a fixed period of time and payment of interest at regular intervals, generally half yearly. Debentures are issued by a company for acquiring long-term borrowings.
Types of Debenture:
• Redeemable Debentures: The debentures which are repayable on a specified date are called redeemable debentures.
• Irredeemable Debentures: If there is no fixed time by which the company is bound to pay back the money then it is known as irredeemable debentures. These debentures are also called perpetual debentures.
• Convertible Debentures: Debentures which can be converted into equity shares after a specified period of time are known as convertible debentures.
• Non-convertible Debentures: Debentures which cannot be converted into equity shares after a specified period of time are known as non-convertible debentures.
• Secured Debentures: If debentures are issued with a charge on the assets of the company as security it is known as Secured debentures. The charge may be fixed i.e., on specified asset, or it may be floating. Secured debentures are also known as mortgaged debentures.
• Unsecured Debentures: if debentures are issued with merely a promise of payment without having any charge on any assets as security is known as, unsecured debentures. So these debentures are also known as naked or simple debentures.
• Registered Debentures: Registered debentures are those which are duly recorded in the register of debenture holders maintained by the company. These can be transferred only through a regular transfer deed.
• Bearer Debentures: Bearer debentures are those which are not recorded in the register of debenture holders maintained by the company.
