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Types of Debentures

Courtesy/By: Deepshikha Thakur | 2021-10-10 12:46     Views : 57

There are many types of debentures like a convertible, non-convertible comma perpetual or irredeemable, Redeemable, partly And fully convertible debentures, fixed and floating rate debentures, callable and portable debentures, participating debentures subordinated debentures, registered and unregistered debentures, secure premium notes, first mortgage and second mortgage debentures, secured mortgage and unsecured debentures etcetera.

Secured and unsecured debentures
Then debentures create text or floating charge on a company They are said to be secured debentures one can call so call it mortgage debentures. The other debenture is unsecured debentures they are also called naked debentures as it is issued solely on the credibility of the issuer. The unsecured debenture does not create any charge or security on the assets of the company. Even if the debentures are unsecured they can still Sue the company for the recovery of the Debts. In the case of secure or mortgage debentures, a trustee will be appointed for holding the secured assets because the title cannot be assigned to every other debenture holder.

Redeemable and irredeemable debentures
Those debentures which are issued on the redeemable basis or there are conditions attached that after a certain fixed period they shall be redeemable and are said to be redeemable debentures. There is a specific date of reduction on the certificate that has been issued and the company will be liable to repay as they will be legally bound to repay the principal amount to the debenture holders on the specific date that has been mentioned on the certificate. Perpetual debentures or irredeemable debentures are not repayable during the lifetime of the company, they also don’t have any specific date of redemption mentioned on the certificate. when a company goes into liquidation only then they can be redeemed or it has to be as per the terms of the issue and when the company chooses to pay them off to reduce their liability or, the debts will only become due for redemption is not regularly paid.

Convertible and non-convertible debentures
when is debenture Holders can convert the Holdings into equity shares search debentures are convertible debentures. It can be done after a specific period and after that, the debenture holders will get to take part in the workings of a company. The terms and conditions of the agreement of debentures at the time of issue specify the rate of conversion and the period after which the conversion will take effect. Non-convertible debentures cannot get converted into equity and it will not become equity at any period.

Fully and partly convertible debentures
When the debentures can be completely converted into equity then they are known as fully convertible debentures but when the debentures Are partly convertible then only a part of it is converted into equity as per the agreed rate of exchange which is mentioned in the agreement and the part which is not convertible where be similar to redeemable debentures which need to be repaid a specific date.

Registered and unregistered debentures
the name, address, and other holding details need to be registered with the issuing company when the holder is transferring the debenture, and Sachin formation needs to be updated in the records of the issuing company, this is known as registered debentures. The company will only pay to the Holder who is registered and if the registration has not taken place the interest and principal will go to the previous Holder. In case of unregistered debentures or bearer debentures, the transfer Is considered as good as currency notes due to their easy transferability, and the interest and principal are paid to the person who produces the coupons and these coupons are attached to the debenture certificates.

Secured premium notes
They redeemed add a premium over the face value of debentures and are very similar to zero-coupon bonds. The secured premium notes are issued at par and redeemed at a premium however zero-coupon bonds are issued at discount and redeemed at par.

Zero-coupon and specific rate debentures
There is no coupon rate in zero-coupon as it is a zero-coupon rate and the debenture holder does not get any interest in it. the companies issue then discounted prices to compensate against no interest. The difference between the issue price and the face value of the debenture is the implicit interest or benefits that arise. A deep discount bond is another name for it. Specific rate debentures are just like normal debentures and they have a specific rate of interest.

Callable and puttable debentures
In callable bonds, The right to redeem or buy back all or part of the bond before it matures is given to the issuer. However, in Puttable debenture, the investor can decide whether he wants an early redemption or not.

Subordinated debentures
When the priority is given to the repayment of debentures after other deaths when the company goes into liquidation then this is known as subordinate debenture they’re junior deaths or subordinated loans. As they undertake more rest they are offered a higher return.

Participating debentures
There are 3 phases of participating debentures that is the initial face, the subsequent phase, in the last phase. No interest is chart when it is in the initial phase. A lower rate of interest is charged when it is in the subsequent phase. And at the last phase, there is a high rate of interest that is charged.

First mortgage and second mortgage debentures
They are secured or mortgage debentures that have been further classified into 2 types that are first and second mortgage debentures. When there is the first charge over the assets of the company, they are said to be first mortgage debentures, and the second mortgage will have a secondary charge. Simply put, only after the obligations of the first mortgage debentures is fulfilled the realization of assets will occur for the second one.

 

This Article Does Not Intend To Hurt The Sentiments Of Any Individual Community, Sect, Or Religion Etcetera. This Article Is Based Purely On The Authors Personal Views And Opinions In The Exercise Of The Fundamental Right Guaranteed Under Article 19(1)(A) And Other Related Laws Being Force In India, For The Time Being.

Courtesy/By: Deepshikha Thakur | 2021-10-10 12:46

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