Biography meaning and definition of debentures today

WallStreetMojo Team. Ashish Kumar Srivastav. Debentures refer to long-term debt instruments issued by a government or corporation to meet its financial requirements.

Types of debentures

In return, investors are compensated with an interest income for being a creditor to the issuer. They are usually an unsecured form of borrowing from the public and have a lengthy tenure, usually exceeding ten years. Key Takeaways. A debenture is essentially a long-term loan that a corporate or government raises from the public for capital requirements.

For example, a government raising funds to construct roads for the public.

Advantages of debentures

Debenture holders are the creditors of the issuing company, unlike a shareholder who is the owner. Just like bondholders, debenture holders also earn an interest income for investing in the debt instrument. The coupon rates or interest rates are usually fixed unless when they are of the floating kind. A fixed rate of interest cushions against market fluctuations, making the investment less risky.

The absence of collateral is offset by stable, low risk and better earnings. Besides, with floating interest rates, earnings become better when rates improve. Whether the repayment methodology involves lump-sum or installment repayment, investors always try to find out the present value or the fair value of the investment.

It helps in ascertaining its profitability.