Debentures: Debentures are the important debt sources of finance for raising long term finance. Debenture holders get fixed rate of interest on Debentures. Interest is paid after every six months or one year. They are like creditors of acompany.
Type of Debentures:
Non Convertible Debentures
Benefits of Debentures capital
1. Safe investment: Debentures are preferred by those investor who do not want to take risk and interested in fixed income.
2. Control on voting and decision making in company: Debenture holder do not have voting right. No control over the managment.
3. Less Costly: Debentures are less costly as compared to cost of preference shares.
4. Tax Saving: Interest on Debentures is a tax deductable expense. Therefore, there is a tax saving.
Drawbacks of debentures capital
1. Fixed Obligation: There is a greater risk when there is no earning because interest on debentures has to be paid if the company suffers losses.
2. Charge on assets: The company has to mortgage its assets to issue secured Debentures.
3. Reduction in Credibility: With the new issue of debentures, the company’s capability to further borrow funds reduces.