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Issue of Debentures Video Lecture - Commerce

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FAQs on Issue of Debentures Video Lecture - Commerce

1. What is a debenture in commerce?
Ans. A debenture in commerce refers to a type of long-term debt instrument issued by a company or government entity to raise funds from the public. It is a form of loan taken by the issuer, which promises to repay the principal amount along with interest at a specified future date.
2. How are debentures different from shares?
Ans. Debentures and shares are both financial instruments used for raising funds, but they have distinct differences. Debentures represent debt, while shares represent equity. Debenture holders are creditors of the company and have no ownership rights, whereas shareholders are owners of the company. Additionally, debenture holders receive fixed interest payments, while shareholders receive dividends based on company profits.
3. What are the advantages of investing in debentures?
Ans. Investing in debentures offers several advantages. Firstly, debentures provide a fixed income stream in the form of regular interest payments, which can be attractive for conservative investors. Secondly, debenture holders have a priority claim over company assets in case of bankruptcy or liquidation. Lastly, debentures can be traded in the secondary market, allowing investors to sell their holdings if needed.
4. What are the risks associated with debenture investments?
Ans. There are certain risks involved in debenture investments. One major risk is the credit risk, where the issuer may default on interest payments or fail to repay the principal amount. Market risk is another concern, as the value of debentures may fluctuate based on changes in interest rates. Additionally, liquidity risk can arise if the debentures are not easily tradable in the secondary market.
5. How can an investor assess the creditworthiness of a debenture issuer?
Ans. To assess the creditworthiness of a debenture issuer, investors can consider various factors. One important factor is the credit rating assigned by reputable credit rating agencies. Higher ratings indicate lower credit risk. Investors can also analyze the financial health and performance of the issuer, including factors such as profitability, cash flow, and leverage ratios. Additionally, reviewing the issuer's track record and reputation in the market can provide insights into their ability to meet their debt obligations.
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