Why are Debentures Issued? Video Lecture | Accountancy CUET Preparation - Commerce

the concept let us first understand what
is a debenture and why our debentures
issued say for example a company needs
funds maybe 500 crores how does it raise
these funds what are the options that it
has it could issue shares to the public
could be in the form of preference
shares or equity shares or maybe they
could go to the bank and try to take a
loan go to a couple of banks since the
amount is used at 500 crores maybe go 2
to 3 minds and take a loan
another option is to raise loans from
the public debentures are nothing but
loan from public just like a company can
raise money by the issue of equity
shares the company can also raise money
from the issue of debentures which are
actually nothing but a loan given by the
public the advantage in this case is
that the ventures may be of different
denominations we may have denomination
of 100 or a denomination of thousand or
a denomination of 10,000 let's say a
company has debentures of a denomination
of 1000 I as an investor may buy 10
debentures of 1000 each and therefore
invest ten thousand another investor may
buy 100 debentures of 1000 each and
therefore invest 1 lakh therefore money
from a large number of people can be
raised the ventures are also called once
so what is a debenture actually the
venture is nothing but loan which is
raised by a company from the general
public
thus a company may find it convenient to
raise load in the form of
debentures let us look at it from an
investor's point of view
why would somebody invest in images an
investor may put his money in the
national savings certificate and get a
return of eight or eight point five
percent per annum his money is very safe
national savings certificate are issued
by the government he gets a fixed return
of 8.5% and there is hardly any risk
related to it since the funds are with
the government if a person were to
invest in a fixed deposit with the bank
maybe he would get nine percent anything
from eight point five to nine point five
percent they may get slightly higher
returns fixed deposit is also safer than
other forms of investment but National
Savings certificate would be considered
more safe less risky than a fixed
deposit with a private back the third
option is dimensions in a debentures the
return would be higher of course it
would be a little more risky then
perhaps the National Savings certificate
or a fixed deficits with a Mac the
ventures but are usually secured
debentures which means they are secured
with the charge of the assets of the
company so usually the ventures are
considered not very risky or not as
risky as maybe investing in shares of a
company therefore in all the three there
is a risk and return trade-off higher
the risks higher the treta so for an
investor who wants a fixed rate of
return he may put in money in the
national savings certificate very safe
but the lower rate of interest or in a
fixed deposit with a slightly higher
rate of interest but maybe a little more
risky or with the debentures with a
still better rate of return but maybe
more risky than either the national
savings certificate or fixed deficits
several companies issue debentures and
they have yields from anything between
11 to 30 asset