## Debentures
### What is it?
Debentures are debt instruments issued by companies to raise long-term funds from the public or via private placement. They carry a fixed interest rate and are repayable after a fixed period.
### Key Features
| Feature | Detail |
|---|---|
| Interest-Bearing | Pays fixed interest regardless of profit; interest is tax-deductible (charge against profits) |
| Maturity | Generally 3 to 10 years; extendable for high gestation projects |
| Security | Can be secured (mortgage on assets) or unsecured (naked/simple) |
| Credit Rating | Mandatory by agencies like CRISIL, ICRA, CARE before public issue |
| Tradability | May be listed or unlisted; freely transferable if listed |
### Types of Debentures
A. Based on Convertibility
| Type | Feature |
|---|---|
| Non-Convertible (NCD) | Repayable fully in cash at maturity |
| Fully Convertible (FCD) | Entire value converts into equity at pre-defined terms |
| Partly Convertible (PCD) | Split into convertible and non-convertible portions |
B. Other Types
| Type | Feature |
|---|---|
| Bearer Debentures | Transferable like negotiable instruments; holder entitled to interest |
| Registered Debentures | Interest payable only to the registered holder |
| Mortgage Debentures | Secured by a charge on company assets |
| Naked/Simple Debentures | Unsecured; no specific charge on assets |
| Redeemable Debentures | Repaid after a fixed period |
| Non-Redeemable Debentures | Not repayable during company's lifetime (rare; legally restricted today) |
### Advantages
1. Lower Cost — interest is tax-deductible → cheaper than equity or preference capital
2. No Dilution of Ownership — debenture holders have no voting rights
### Credit Rating Agencies
- CRISIL — Credit Rating Information Services of India Limited
- ICRA — Investment Information and Credit Rating Agency
- CARE — Credit Analysis and Research Limited