Debentures are debt instruments that businesses can use to borrow money. These are normally medium or long-term instruments. They are usually transferable.
A convertible debenture is an example of a type of debenture. This is a convertible bond. After a specific period of time, it can be converted into an equity share of the company. The payoff lies in the fact that this kind of debenture are known for having low interest rates compared to those of non-convertible debentures.
Non-convertible debentures, referred to simply as debentures, do not carry the same advantage of convertibility. However, they provide higher interest rates, which may cancel out any perceived disadvantage from the lack of flexibility.
Whether a debenture is convertible or not, it does not carry voting rights. Any interest paid out to investors is computed against the company’s profit in its accounting records.
Debentures may either be secured or unsecured bonds, depending on the regulations of the country in question. For instance, in the United States, debentures are known as unsecured corporate bonds. On the other hand, in the United Kingdom, debentures are usually known to be secured.
Some debentures are not payable as long as the company is still running. Such debentures are called irredeemable.
