What are Bonds and Debentures?
Bonds and debentures are two of the most popular debt investment alternatives available to investors. Debentures are convertible or non-convertible debt instruments issued by corporations, whereas bonds are certificates of debt issued by government agencies or enterprises to obtain cash. Bonds are issued by government entities, whereas debentures are issued by private companies, public sector units, banks, and NBFCs. Bonds and Debentures are issued with the aim of raising capital, in return for which the borrower pays interest to the investor.
Debentures vs Bonds
Although both investment instruments are similar, an investor should know the thin line between the two.
| BONDS | DEBENTURES |
| Bonds are secure in nature. | Debentures can be secure as well unsecured. |
| One can have bonds of corporation, government agencies or it can be of any financial institution. | On the other hand, debentures are issued by private companies. |
| Bonds are less risky comparatively. | Whereas debentures are at high risk. |
| Talking about liquidity bonds are at the first priority. | Whereas in case of debentures liquidity can only be done after the bondholders are paid. |
| Bonds give you low interest, but it depends on the issuing body totally. | Whereas debentures give you high interest. |
At their core, Bonds can be said to be similar to loans, as they both mature on a stipulated date. Based on the terms and conditions specified at the time of issue, the investor can earn interest on the bond either at regular intervals.
What are the different types of bonds and debentures in India?
Here is the list of popular Bonds and Debentures available in India.
- Central Government Bonds
- State Government Bonds
- Municipal And Local Authority Bonds
- Corporate Bonds
- Public Sector Bonds
- Tax-Free Bonds