IVA Glossary
D
Debenture
A debenture is a financial tool which is of unsecured type. For example, individuals buy bonds from a certain company, which in return will pay a certain interest rate as a "profit" of these bonds. In case the company enters into liquidation, but the individual still had his bonds within the company, he/she may recuperate the loss from the company after it has sold its assets or types of equipments owned.
It is important to make a distinction between the convertible debentures and the non convertible ones. The convertible bonds come with typically lower interest rates, exactly because there is a smaller degree of risk involved for the buyer because of their "convertibility". Through convertibility it is involved that it is possible to convert these bonds into company equity shares after a certain time passes.
The non convertible bonds on the other hand come with much higher interest rates, because there is a greater risk involved for the buyer. These bonds cannot be turned into equity shares of the respective company. Making investments into debentures is usually a lot riskier then investing into regular bonds, but these will definitely bring higher earning possibilities. Also, investing into debentures brings the buyer no administrative rights like the right to vote within the company.
It is important to make a distinction between the convertible debentures and the non convertible ones. The convertible bonds come with typically lower interest rates, exactly because there is a smaller degree of risk involved for the buyer because of their "convertibility". Through convertibility it is involved that it is possible to convert these bonds into company equity shares after a certain time passes.
The non convertible bonds on the other hand come with much higher interest rates, because there is a greater risk involved for the buyer. These bonds cannot be turned into equity shares of the respective company. Making investments into debentures is usually a lot riskier then investing into regular bonds, but these will definitely bring higher earning possibilities. Also, investing into debentures brings the buyer no administrative rights like the right to vote within the company.
