24. Detailed Information On Debentures from Financial Management Subject

Summary

In this educational video from Devika's Commerce and Management Academy, the focus is on debentures, a type of debt instrument issued by companies. Debentures are certified documents secured by government certification, ensuring safety for investors. They come in various types, including secured, unsecured, redeemable, irredeemable, guaranteed, and convertible. The video discusses their features like long maturity periods, fixed interest rates, and lack of voting rights. It also highlights the advantages of debentures, such as long-term financing and tax benefits, and the disadvantages, including fixed interest returns and no voting rights, emphasizing the importance of understanding these financial instruments for students of commerce and management.

Takeaways

• 📜 Debentures are debt instruments issued by companies, acting as a certificate of debt with interest payments to holders.
• 🔐 Debentures are considered safe investments as they are certified by the government and regulated by financial authorities like SEBI.
• 💼 Companies typically issue a limited number of debentures and face restrictions on further issuance, making them less common than equity shares.
• 💰 Debenture holders are entitled to a fixed interest rate, which is guaranteed and must be paid by the company regardless of profitability.
• 🏦 In the event of liquidation, debenture holders are paid off before preference shareholders and equity shareholders, reflecting their creditor status.
• 🔑 There are six types of debentures: Secured, Unsecured, Redeemable, Irredeemable, Guaranteed, and Convertible, each with distinct characteristics.
• 📈 Redeemable debentures can be redeemed by the company after a certain period, while irredeemable debentures remain with the company indefinitely.
• 🔒 Secured debentures are backed by company assets, providing more security to the holders compared to unsecured debentures.
• 📉 Convertible debentures offer the option to be converted into equity shares, providing potential for capital appreciation.
• 🏢 Debenture holders do not have voting rights and are not involved in the company's management decisions, as their investment is a loan to the company.

Q & A

What are debentures?

Debentures are a type of debt instrument issued by a company to raise capital. They are a document certified by the government and represent a loan to the company, which is repaid with interest over time.

Why are debentures considered safe to buy?

Debentures are considered safe because they are certified by the government and regulated by the Securities and Exchange Board of India (SEBI), ensuring a level of protection for investors.

What are the two main points to remember about debentures?

The two main points to remember about debentures are that debenture holders are entitled to receive interest at any cost, and in the event of liquidation, debenture holders' investments are paid off first as they are considered creditors of the organization.

What are the different types of debentures mentioned in the script?

The script mentions six types of debentures: Secured, Unsecured, Redeemable, Irredeemable, Guaranteed, and Convertible.

What is the difference between secured and unsecured debentures?

Secured debentures are backed by the company's assets, giving the debenture holders a claim on those assets in case of liquidation. Unsecured debentures, on the other hand, do not have any security over the company's assets.

What are redeemable and irredeemable debentures?

Redeemable debentures can be redeemed or repaid by the company after a certain period, while irredeemable debentures do not have a maturity date and remain with the company until it ceases to exist or winds up.

How do guaranteed debentures differ from other types of debentures?

Guaranteed debentures offer additional security as the repayment is guaranteed by a third party, such as a bank or another company, in addition to the issuing company.

What are convertible debentures and how do they work?

Convertible debentures can be converted into equity shares of the company. This conversion can be either fully or partially, depending on the terms set at the time of issuance.

What are the main features of debentures?

The main features of debentures include a long maturity period, residual claims in income and assets, no voting rights, and a fixed rate of interest.

What are the advantages of issuing debentures for a company?

The advantages of issuing debentures include providing a long-term source of finance, a fixed rate of interest, income tax deductions, and protection for debenture holders.

What are the disadvantages of debentures for both the company and the investors?

Disadvantages for the company include the fixed interest burden regardless of profits, no voting rights for debenture holders, high risk due to mandatory interest payments, and restrictions on further issues. For investors, the disadvantages are the fixed rate of interest and no participation in company decisions.