Debentures

A Debenture is a type of debt instrument, similar to a bond, that is not secured by physical assets or collateral. Debentures are documented in an indenture which is a written agreement between the issuer and holder and sets out specific rights as to repayment of capital and interest.

Benefits

• Debentures provide higher rates of financial return and are usually much more rewarding than government bonds or bank investments
• At the end of the lending period, issuing companies usually offer the choice of converting the debentures for stock
• Interest is paid to investors whether or not the issuing company makes a profit or not
• Debentures are transferable from investor to investor
• The cost of debt is lower than the cost of equity or preference shares as interest is tax deductible

Who should use this product?

• Investors seeking a regular fixed income in the form of interest, regardless of the issuing company’s performance
• Investors wishing to diversify their portfolios across different asset classes

How to use this product?

• Debentures can be held until maturity, receiving interest payments. The capital is returned at the end of the period.
• Debentures can also be traded on the secondary market