When the full amount of debenture is convertible into shares, such debentures are called ‘Fully Convertible Debentures’. Debentures are also known as a bond which serves as an IOU between issuers and purchaser. ii. However in this case usually the company will offer a premium to an investor in case of early redemption. The different types of debentures have been explained in brief as follows:-Registered Debentures: These are those debentures which are registered in the register of the company. In this video, you can find a detailed explanation of the debentures and its salient features. The charge on assets of company is of two types – (i) Fixed charge (ii) Floating charge. This is the one we’ve already mentioned, where assets are leveraged for security against a loan. 1. On such debts, company pays interest at regular intervals.They are the creditor of the company . ii. There are various forms of debentures which a company can issue depending upon its requirement. During the subsequent stage, interest is charged at a lower rate of interest, up to a particular level of operation. Types of Debentures. Debentures may be different types depending upon the terms and conditions of their issue. Debentures may be of the following kinds: These are debentures which are payable to the registered holders i.e., persons whose names appear in the Register of Debenture holders. iv. The Transfer of such debentures requires the execution of a proper transfer deed. The debentures can either be registered or bearer debentures as per this classification: a. Convertible debentures are mixed financial tools carrying the benefits of both debt and equity shares. The holders of convertible debentures have a right to convert the debentures into shares. In India, such debentures can’t be issued. Equitable debentures are those which are secured by deposit of little deeds of the property with a memorandum in writing creating a charge; ii. Debentures are the most popular form of debt capital. Debenture holder provides loan to the company and has nothing to do with […] 3. Convertible Debentures (b) Second Debentures – The debentures, which will be repaid after the first debentures are redeemed, are known as second debentures. Normally, the types of assets caught by a fixed charge are: book debts under a factoring agreement, freehold or leasehold property, and plant and machinery fixed to the floor. As such, the payment of interest and the repayment of these debentures are made to the bearers or the holders of the debentures. Debenture is a security issued or allotted to the investor under the seat of the company who become creditors of the company. Bearer Debentures 3. Only on the basis of coupons attached, the debentures are paid interest at regular periods, on the presentation of these coupons and similarly, they are paid at the time of redemption. Registered Debentures. There is no need of any registration of transfer. The non-convertible part becomes as good as redeemable debenture which is repaid after the expiry of the agreed period.eval(ez_write_tag([[728,90],'efinancemanagement_com-box-4','ezslot_1',118,'0','0'])); Debentures can be secured in nature, it may be unsecured in nature. As in the case of any debt, the debentures have two fundamental features of periodic payment of interest and repayment at a specified point of time. ADVERTISEMENTS: Read this article to learn about the meaning, types, advantages and limitations of debentures of a company. Fully Convertible Debentures – When the full amount of debentures is convertible into shares. These debentures are negotiable instruments. (a) Convertible Debentures – These debentures offer the investors an option to convert their debentures into shares at a stated rate of exchange after a certain period. These are debentures in which the company requires an interest-bearing loan. The interest on bearer debentures is paid by means of attached coupons. This type of security can be issued by the company to avoid hostile take over. Redeemable debentures – Redeemable debentures are redeemed after the expiry of certain agreed period in one lump sum or in installments over a period or at the option of the company. Redeemable debentures are those which can be redeemed during the life time of the company i. e. … The holders of such debentures are treated as unsecured creditors at the time of liquidation of the Company. The terms of conversion are normally known at the time of issue of the debenture. Mortgage debentures are of the following two types: First mortgage debentures The principal part of the debenture is repaid only on winding up of the company. These may be fully convertible or partly convertible into shares. They may be redeemed in instalments or in lump-sum. These debentures are not backed by any security. These debentures are issued at substantial discount to the face value and the difference between the face value and the issue price is treated as the amount of interest related to the duration of the debentures. Secured debentures (mortgage debentures) are such which create a charge on the assets of the company. ? On such debts, company pays interest at regular intervals.They are the creditor of the company . Such debentures are issued on temporary basis and the bankers refund the debentures whenever loan is repaid. This enables the company to know the owner of such debentures, so that it can pass on to them, the benefits of holding the debentures. The debentures of sound and stable concerns are good investment from the point of view of the class of investors who do not want to risk their savings too much and yet wish to earn an income higher than what can be earned on gilt-edged or Government securities. ii. Types of Debentures: The debentures are classified on the basis of the terms and conditions of their issue by the company . It is a method of financing in case of venture capital financing. Such debentures are very popular these days, as they provide liquidity, safety, capital appreciation and assured return to the investors. Issue of Debentures. In India, debentures have necessarily to be secured. Private Placement of Shares. Redeemable debentures carry a specific date of redemption on the certificate. This type of debenture accrues interest at a floating rate for the whole of its tenure. Debenture can be classified as under: 1. FINANCIAL MANAGEMENT CONCEPTS IN LAYMAN’S TERMS, Use of this feed is for personal non-commercial use only. Mutual fund bonds can be categorized as actively managed bond, passively or indexed managed bond, open-end and closed end, sponsored of open-end bond funds, unit investment trust, etc. (a) Registered Debentures – These debentures are not transferable by mere delivery. When at the time of issue of debentures the assets of company are mortgaged in favour of debenture holders, such debentures are known as secured debentures. Interest on these debentures is paid by the company to a person who produces the interest coupon attached with the debentures. It only means that there is no fixed time for the repayment of these debentures. Please Login or Register to Submit Comment You may also want to read. Such debentures are not popular among the investors. There are various types of debentures like redeemable, irredeemable/perpetual, convertible, non-convertible, fully secured, partly secured, mortgage, unsecured, naked, first mortgaged, second mortgaged, the bearer, fixed, floating rate, coupon rate, zero coupon,  secured premium notes, callable, puttable, etc. Considering its various types, debentures are issued by the company as required by the investor investing in the company. They are transferred only after a transfer deed is executed in the favour of the transferee. There are several types of debentures available in the market. The debentures have interest coupons attached to them. Need not get surprised, for compensating against no interest, companies issue them at a discounted price which is less compared to the face value of it. There are various types of debentures like redeemable, irredeemable, perpetual, convertible, non-convertible, fully, partly, secured, mortgage, unsecured, naked, first mortgaged, second mortgaged, the bearer, fixed, floating rate, coupon rate, zero coupon, secured premium notes, callable, puttable, etc. First mortgage debentures are those that have a first claim on the assets charged and second mortgage debentures are those having a second claim on the assets charged. They are debentures which are not secured by any assets of the company irrespective of the interest or principal. When only a part of the amount of debenture is convertible into shares, such debentures are called ‘Partly Convertible Debentures’. The conversion is usually at the option of the debenture holders. Depending on the presence of coupon rates, Debentures are classified as follows: Zero - Coupon Rate Debentures. Here, we focus on understanding Bearer bonds and how are they different from other bonds. Bearer debentures are easy to transfer and they get transferred by mere delivery. I liked it. Debentures may be classified on the basis of:-. They can be classified on various grounds. Coupon Rate. Debentures can be classified into different types on the basis of the terms and conditions of issue: i. Bearer debentures mean that no records are maintained by the company as to who is the debenture-holder. Unsecured debentures do not carry any charge or security on the assets of the company. Everything you need to know about the types of debentures. As such, ordinarily these debentures are not repaid during the existence of the company. As such, the payment of interest and the repayment of these debentures are made only to the persons whose names are recorded in the register of the company. Types of Debentures. At the time of redemption also it can be at par, discount, or premium. Convertible Debentures 9. In these types of debentures, the debenture is given priority of payment after other debts, when a company goes into liquidation. The specified rate may either be fixed or floating. Convertible debentures – Debentures may be convertible into equity or preference shares of the company on certain dates or during certain periods on the basis of an agreement between the company and debenture-holders. Whereas, the unregistered commonly known as bearer debenture. Running this blog since 2009 and trying to explain "Financial Management Concepts in Layman's Terms". Following are the various types of debentures vis-a-vis their basis of classification. Generally, debentures are secured, however, there are unsecured types of debentures as well. All other debentures with a specified rate of interest are specific rate debentures which are just like a normal debenture. They are those debentures in respect of which the names and the addresses of debentures holders and the particulars of the debentures held by them are not entered in the register of debentures holders maintained by the company. The redemption may be in lump sum or installments. Second debentures – Second debentures are those which are paid after the redemption of first debentures. Convertible Debentures. Lending institutions can exercise their right as debentureholders, if the company does not pay loan and the principal security falls short. Debentures can be issued based on various factors i.e. The interest and the principal amount on such a debenture is payable upon presentation and delivery of the coupons and debentures. Based on the performance, there are two types of debentures which are issued i.e. However debentures may be issued without any charge on the assets of the company. Types of Debentures. can be transferred by mere delivery to the new holder. – Second debentures are those which are paid after the redemption of first debentures. Unsecured or Naked Debentures 7. By Lawfarm Team. Status 5. Names and addresses of the holders of such debentures are not recorded in the Company and these debentures are transferable by mere delivery. The holder of said debenture is allowed to receive any interest fee on the payable dates. Registered debentures – The details of debenture holders, the number of debentures held by each debenture holder is entered in the debenture ledger maintained by the company. They are those, the holders of which have no right to convert them into equity shares. In other words, it is a special feature that a corporate bond may carry. Debenture holders can’t force the company to redeem these debentures. Which are given below: Convertible debentures are the ones that can be converted into equity shares at a later time. Secured Debentures. 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