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What are Debentures in Stock Market?
Posted: Jan 30, 2023
We now understand that companies can issue debentures to raise capital without reducing their ownership. This is comparable to how businesses sell equity in their corporations by issuing marketable shares.
In exchange for a certificate containing the debenture's maturity date, the point at which the principle will be returned to the holder, and the annual interest rate that holders will accrue up until the debenture expires, businesses offer debentures to the general public on the open market. It is equivalent to the public lending the issuer money. If you want to know the difference between shares and debentures, you can read our article.
Types of Debentures
Depending on the needs and requirements of the company, debentures are issued in a variety of forms by companies. Debentures can take many different forms, such as:
Convertible Debentures are those types of debenture shares that allow investors to exchange their debenture holdings for business equity shares. When the debentures are issued, the holders' rights, conversion rates, and conversion trigger dates are often established.
Debentures that are not convertible are the exact opposite of convertible debt. The right to convert these debentures into equity shares is absent.
Registered debentures are those that the corporation issuing the debenture enters information about its holdings, such as the quantity of debentures issued and the investor's name and address. Because of this, if a debenture holder moves their investments to another investor, their information will show up in both the transfer register and the debenture holder registration.
Bearer debentures, also known as unregistered debentures, are issued by companies that keep no records at all. Regardless of who is named on an instrument, the corporation pays the principal and interest to the holder. An unregistered debenture also has the advantage of being simple to transfer to a new holder.
One of the categories of debentures known as redeemable designates the redemption date on the debenture certificate. When the redemption date arrives, a corporation has a duty to pay the principal back to debenture holders.
Unlike redeemable debentures, which have an expiration date, these debentures are perpetual, meaning that there is no time limit on when the corporation must pay the holder. It can only be redeemed if the business declares bankruptcy.
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