FAQs on Introduction to Debentures (Contents)

Question 1

1. What is a debenture?

Accepted Answer

Ans. A debenture is a type of long-term debt instrument issued by a company or government to raise funds. It is a written acknowledgement of debt that specifies the terms and conditions of repayment, including the interest rate and maturity date.

Question 2

2. How are debentures different from shares?

Accepted Answer

Ans. Debentures and shares are both financial instruments used by companies to raise capital, but they have some key differences. While debentures represent debt and provide the holder with fixed interest payments and repayment of principal, shares represent ownership in the company and provide the shareholders with dividends and voting rights.

Question 3

3. What are the different types of debentures?

Accepted Answer

Ans. There are several types of debentures, including convertible debentures, non-convertible debentures, secured debentures, unsecured debentures, redeemable debentures, and irredeemable debentures. Each type has its own unique features and characteristics.

Question 4

4. How do debentures benefit investors?

Accepted Answer

Ans. Debentures offer several benefits to investors. They provide a fixed and regular income stream in the form of interest payments. Debentureholders also have a higher claim on the company's assets in case of bankruptcy or liquidation compared to shareholders. Additionally, debentures can be easily traded in the secondary market, providing liquidity to investors.

Question 5

5. What are the risks associated with investing in debentures?

Accepted Answer

Ans. While debentures are considered a relatively safer investment compared to shares, they still carry some risks. The main risk is the possibility of default, where the issuer is unable to make interest payments or repay the principal amount. Other risks include interest rate risk, where changes in interest rates affect the value of the debenture, and liquidity risk, where it may be difficult to sell the debentures in the secondary market. Investors should carefully assess these risks before investing in debentures.

Introduction to Debentures (Contents) Video Lecture - Accountancy Class

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