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Debentures
In law, debenture refers to a document which creates or acknowledges a debt. In corporate finance, it refers to an instrument used by companies to loan money. Debentures are generally transferable.
299 Questions
What is Debenture Redemption Reserve?
Debenture is a debt instrument to raise funds. It has a maturity period associated with it. At the end of the maturity, the company(borrower) should return the interest and principal amount.
Debenture Redemption Reserve is an amount kept as reserve for paying the debenture holder at the end of the maturity period.
How do you calculate interest on debentures loan?
The Debenture loan is an unsecured debt backed by the credit worthiness of the borrower. The interest is calculated based on the 10-year Treasury rate plus a market-driven spread, which is currently about 65-75 basis points.
Can a Company Buy back its Debentures?
Typically no, unless this is agreed upon between the debt holder and the issuing institution. The exception to this is callable debt, which allows the issuing corporation to pay off the debt within a certain window, specified by the terms of the issuance.
If for example a company obtains a secured loan or overdraft facility from its bank, the latter is likely to insist that the company seals the banks standard form of debenture creating the charge and giving the bank various safeguards and powers
What is the difference between fixed deposit and non convertible debenture?
fixed deposit has its fixed term, but debenture does not have any term. fixed deposit can be invested in eqty,debt or any other , but the debenture is debt only.
Value of debenture depends upon where you are trying to cash it.
Legally speaking, the company or the organization which has issued the debentures has to honor the face value, presuming they are redeemable type, of course.
However, if you try to trade the debentures on stock exchange, several economical, financial and other considerations come in play. Naturally the price offered will reflect all these. It may not be the same as the one paid at the time of purchase .
What is the difference between a convertible bond and a convertible debenture?
A convertible debenture is a type of convertible bond. However, a debenture is unsecured debt, which means that there is no collateral for the bond. The alternative to a debenture would be a secured bond such as a mortgage bond that would be secured by real estate. If the company goes out of business, the collateral for the secured bonds would be used to pay off those bonds and the holders of the debentures would be paid from whatever is leftover. Most convertible bonds are debentures.
What are the reasons for the creation of debenture redemption reserve fund?
Indian Companies Act of 1956 added during an amendment in the year 2000. It states Indian company that issues debentures must offer debenture redemption service to protect investors against the possibility of company default. If a company does not create a reserve within 12 months of issuing the debentures, they will be required to pay 2 percent interest in penalty to the debenture holders. Only debentures that were issued after the amendment in 2000 are subject to the debenture redemption service.
Debenture a good thing or bad?
From an investment or shareholder standpoint is a good thing
A debenture demonstrates confidence in the company. It is the same thing as lending someone money with interest without that someone puttiing anything up as collateral to guarantee the loan.
In other words, as the lender you are more sure that you will be paid back plus interest and therefore do not require anything as collateral.
It is the same principle as buying a government bond. As the purchaser, you know for sure you will get paid back plus interest.
What are the features of debentures?
debenture holders are not the owner of the company.they are considered as the creditors of the corporation or in other words the company borrow money from them through issuing debentures.moreover, they has no voting rights in the company's general meeting.
What is a debenture certificate?
it is a document that serve as evidence of a debenture for a debenture share holder
Which companies issued debentures recently in Pakistan?
Recently Engro Pakistan sold debentures to general public!
Why debenture redemption reserve is transfer to general reserve?
When debentures are redeemed payment is made from a reserve which is created at the time of purchase of such debentures,therefore at the time of payment first it is transferred to general reserve then as it is expenditure to company.
What is the difference between a debenture and a bond?
Long-term debt securities issued by the Government or any of the State Government's or undertakings owned by them or by development financial institutions are called as bonds. Instruments issued by other entities are called debentures. The difference between the two is actually a function of where they are registered and pay stamp duty and how they trade.
reference: http://www.fimmda.org/useful_links/faq.asp#p3
What are the types of debentures?
What is a Debenture?
A Debenture is a debt security issued by a company (called the Issuer), which offers to pay interest in lieu of the money borrowed for a certain period. In essence it represents a loan taken by the issuer who pays an agreed rate of interest during the lifetime of the instrument and repays the principal normally, unless otherwise agreed, on maturity.
These are long-term debt instruments issued by private sector companies. These are issued in denominations as low as Rs 1000 and have maturities ranging between one and ten years. Long maturity debentures are rarely issued, as investors are not comfortable with such maturities
Debentures enable investors to reap the dual benefits of adequate security and good returns. Unlike other fixed income instruments such as Fixed Deposits, Bank Deposits they can be transferred from one party to another by using transfer from. Debentures are normally issued in physical form. However, corporates/PSUs have started issuing debentures in Demat form. Generally, debentures are less liquid as compared to PSU bonds and their liquidity is inversely proportional to the residual maturity. Debentures can be secured or unsecured.
What are the different types of debentures?
Debentures are divided into different categories on the basis of: (1)convertibility of the instrument (2) Security
Debentures can be classified on the basis of convertibility into:
· Non Convertible Debentures (NCD): These instruments retain the debt character and can not be converted in to equity shares
· Partly Convertible Debentures (PCD): A part of these instruments are converted into Equity shares in the future at notice of the issuer. The issuer decides the ratio for conversion. This is normally decided at the time of subscription.
· Fully convertible Debentures (FCD): These are fully convertible into Equity shares at the issuer's notice. The ratio of conversion is decided by the issuer. Upon conversion the investors enjoy the same status as ordinary shareholders of the company.
· Optionally Convertible Debentures (OCD): The investor has the option to either convert these debentures into shares at price decided by the issuer/agreed upon at the time of issue.
On basis of Security, debentures are classified into:
· Secured Debentures: These instruments are secured by a charge on the fixed assets of the issuer company. So if the issuer fails on payment of either the principal or interest amount, his assets can be sold to repay the liability to the investors
· Unsecured Debentures: These instrument are unsecured in the sense that if the issuer defaults on payment of the interest or principal amount, the investor has to be along with other unsecured creditors of the company.
Define redemption of debentures out of capital?
When debentures are redeemed out of capital, no transfer is made
to general reserve or debenture redemption reserve account. In this method it is assumed that the company has sufficient funds to redeem the debentures. So the profits are not utilised to replace the debentures.It affects adversely to the Working Capital of the company.
Lets understand meaning of Preference Share in Layman language. As name suggest preference shares are those kind of shares which has preference in payment of dividend, and price of shares over equity shares. If company earn net profit, then first return to preference shareholders are given at first, and then to equity shareholders.
What are five different financial applications for the time value of money?
Equipment purchase or new product decision,
Present value of a contract providing future payments,
Future worth of an investment,
Regular payment necessary to provide a future sum,
Regular payment necessary to amortize a loan,
Determination of return on an investment,
Determination of the value of a bond.
Discount on issue of debentures is a?
capital loss to be written off over the tenure of the debentures .
What is a bank debenture forfaiting program?
Simply go at: http://www.treasurydirect.gov/instit/statreg/fraud/fraud_prime1.pdf
What are zero-coupon debentures or bonds?
A zero coupon bond pays no interest. Thus the market price for such a bond is always LESS than the maturity (face) value. The amount by which the bond is priced below its maturity value is known as the DISCOUNT.
For example, a $100 zero coupon bond maturing in one year priced to yield 10% (in simple terms) would be sold to the investor for $90.91 on the date of issue. The investor would receive no payments from the borrower until maturity, at which time the investor receives the $100 face value. Some brokerages will take a regular bond with coupons and "strip" it. They'll remove the coupons and sell the corpus of the bond separately from the coupons. A zero-coupon bond that was issued as such will normally have a really long maturity date--five to ten years isn't uncommon. You buy them as long-term investments...if you've got a child who will begin college when she's 19, you might want to buy ten-year zero-coupons that mature as the child enters each year of college.
