Leading enterprises issue debentures to raise funds for their business needs. Investors earn interest on their investments in debentures. Debentures are typically unsecured, so investors can expect a higher interest rate. Top-rated debentures issued by good companies are relatively safe and can provide investors with a steady income.
Higher rate of return than other debt and fixed income products
Liquid as they can be traded on the stock exchanges
Top-rated debentures are usually safe
There are many types of debentures (convertible, partly convertible, fully convertible, optionally convertible and non-convertible debentures) that offer investors a lot of choices and flexibility while investing.
JM Financial Services Limited offers its customers a wide range of debentures issued by leading Indian companies. Our wealth associates can guide you in investing in top-rated debentures that offer a risk-return profile aligned to your needs.
A debenture is a long-term debt security offered by corporations to the general public to meet capital requirements. They have a specified tenure, and fixed interest payments are made to debenture holders. For example, a company may issue one lakh debentures with a face value of ₹200 per debenture with an interest rate of 8%. The total value of the issue is 1 lakh x 200 = ₹ 2 crore. Mr. X purchases five units paying ₹1,000. He will receive an annual interest of ₹80 (1,000 x 8%).
Bonds are issued by large corporations, financial institutions, and government agencies and are backed by collateral or physical assets. Debentures, however, are issued by private corporations and may or may not be backed up by any collateral or asset.
From an investor's perspective, debentures are investable securities that provide them with regular interest payments and the principal upon redemption. From the issuer's perspective, debentures are used for raising capital without diluting equity. Companies may use the money raised from debentures for their long-term capital requirements.
From an investor's point of view, the pros of debentures are:
- Fixed interest rates, higher than bank FDs
- Less volatile than equity investments
From an investor's point of view, the cons of debentures are:
- May or may not be secured. In the case of a default, investors may lose money.
- Provides relatively lower returns compared to the stock market.
