Asked in Investing and Financial MarketsBonds and TreasuriesDebentures
Investing and Financial Markets
Bonds and Treasuries
List the advantages to the company of raising funds through the issue of debentures?
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There are different sources of long term finance which can be used to generate the finance for the business for long period of time. One of the most commonly used is Equity Shares, the issuing of equity shares is the most important source for raising the long term capital by the company. These shares are the best source because they are only paid back on winding up of company. Equity shareholders are the real owners of the company. Equity shareholders get dividend when the company is earning profits. A company can now issue different classes and kinds of shares to raise its owned capital. The kind of shares will be issued according to the needs of the company and preferences of the investors. There are two types of shares one is right shares. A public company may increase its subscribed capital by issue of right shares. Right shares are offered to the shareholders in proportion to their present holding often at a price which is less than the currently quoted price on the stock exchange. The other source is debentures a company also raises long term finance through borrowing. These loans are raised by the issue of debentures. A debenture is an instrument issued by a company to acknowledge the loan taken by the company under its common seal. · Secured and unsecured notes · Convertible notes · Fixed deposit loans · Mortgages · Eurobonds · Interest rates swaps · Forward rate agreements (FRA's) · Interest only futures · Option on future contracts. · Convertible notes · Subordiniated debt
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Discuss briefly various sources of long term finance of Indian companies?
Long-term sources or funds are required to create production facilities through purchases of fixed assets such as plant,machinery,land,building,furniture,e.t.c. Investments in these assets represent that part of firm`s capital which is blocked on a permanent or fixed basis and is called fixed capital. The long-term sources of finance are: 1. Ownership securities: These securities represents shares. Share are the most common form of raising long-term funds from the market.Every company,except a company limited by a guarantee,has a statutory right to issue shares. The capital of a company is divided into a number of equal parts called shares. a. Equity shares: Represents the owner`s capital in a company.The holders of these shares have full control over the working of the company and have voting rights.Equity shareholders are paid dividends from the remaining income of a company. The rate of dividend depends upon the profit of the company. b. Preference Shares: As the name suggests,these shares have certain preferences. There is a preference for payment of dividend.they have fixed rate of dividend,but they don`t have any voting rights and control over the management of a company. 2. Creditorship securities: It is also known as debt-capital,and it represnts debenture and bondsThe use of such securities along with shares in financing of a business generally tends to reduce the cost of capital and helps to improve the earnings of the shareholders. a. Debentures or Bonds: A debenture is an acknowledgement of debt.It is a form of loan on which a company has to pay a fixed amount of interest to debenture-holders.they are the creditors of the company. There are many type of debentures i.e. unsecured,secured,registered,reedemable.irredeemable,convertible,zero coupon bonds,deep discount bonds,e.t.c. 3. Loan financing: A business can also finance through loans from specialised financial institutions and development banks or from commercial banks. 4. Internal financing: A new company can raise funds only through external sources,such as shares,debentures,loans,public deposits,e.t.c. But an existing firm which needs finaance for it`s future growth and expansion can generate funds through retained earnings. 5. Public deposits.