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What is difference between bonds and …

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What is difference between bonds and debentures ?

Posted by Ramandeep Kaur 3 years, 7 months ago

CBSE > Class 11 > Financial Market Management

1 answers

Yogita Ingle 3 years, 7 months ago

Bonds are the financial instruments issued by Government agencies and also by Private organizations for raising additional fund from the public. Debentures are issued by private/public companies for raising capital from the investors.
Bonds are backed by the asset of the issuer whereas debentures are not secured by any of the physical assets or collateral. Debentures are issued and purchased only on the creditworthiness and reputation of the issuing party.
The interest rate of bonds is generally lower than debentures. The lower interest rate depicts the low-risk factor. On the other hand, debentures give you a high-interest rate but they are unsecured in nature hence the risk factor is more here.
The interest on a bond is given to the bondholder in monthly, half-yearly or annually. The interest amount never differs as the interest paid is not depended on the performance of the issuer. Adversely, if you buy debentures, your interest rate may be high but the interest payment will be periodic depending on the performance of the issuer.
There is no to the minimum risk involved in bond investments but the risk factor is high in debentures.
At the time of liquidation, the bondholders are always given preference.
If you own bonds, you can never convert it to equity shares, but debentures can be transferred to equity funds.

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