What are Debentures and various types of Debentures | Details

According to Section 2(30) of the Companies Act, 2013, a "debenture" is any debt that is represented by debenture stock, bonds, or any other company instrument; the debt may or may not result in a charge on the company's assets. In essence, a debenture is borrowed capital, or a loan. It is an admission of the company's debt. Debenture holders turn into creditors.The picture has been used to explain different kinds of debentures.

On the Basis of Security

• Secured Debentures : These securities are backed by a charge on the issuer company's fixed assets. Therefore, the issuer's assets may be sold to satisfy the investors' debt if the issuer is unable to pay the principal or interest. In order to create a security interest, a company issuing a secured debenture must submit Form CHG, 1.
• Unsecured Debentures :  These securities are known as naked debentures because they are unsecured, which means that if the issuer fails to pay the principal or interest, the investor will be among the company's other unsecured creditors.

On the Basis of Registration

• Registered Debentures : Registered debentures are issued to a specific person—literally, the name’s right there on the certificate. The company keeps track too, recording that person as the holder in its official register. If you want to transfer a registered debenture, you can, but you have to go through the proper steps, just like with shares. There’s paperwork, stamping, and you need to follow all the rules in Section 56 of the Companies Act, 2013.
• Bearer Debentures : Bearer debentures work differently. The certificate doesn’t have anyone’s name on it—it’s made out to whoever holds it. These are negotiable instruments, so you can transfer them just by handing them over, no fuss. Whoever ends up with the bearer debenture is the new holder and can claim the principal and interest, unless there’s some specific restriction. It’s about as straightforward as passing cash from one hand to another.

On the Basis of Redemption

• Redeemable Debentures : These debentures may be redeemed on some fixed date after their issue by issuing notices in case demanded and in lots. The items in this category can thus be redeemed as well as reissued alternatively simply cancelled. These can be purchased by paying their par value or a slight margin above that.
• Irredeemable Debentures : When no time is fixed for the company to repay the money, the debenture is known as an irredeemable debenture. A debenture holder cannot demand payment when the company is a going concern and does not default in making the payment of the interest.

On the Basis of Convertibility

• Non Convertible Debentures : These debentures do not lose their character as debt instruments and are also not convertible into equity shares. Partly Convertible Debentures
• Partly Convertible Debentures : A part of the instruments gets converted to Equity Shares in the future at the notice of the issuer of debentures. The issuer determines the proportions of conversion of debentures to equity shares. It is usually done at the time of subscribing to debentures. Fully
• Fully Convertible Debentures :  These debentures are fully convertible into equity shares at the notice of the issuer of debentures. The ratio of conversion of debentures to equity shares will be determined by the issuer of debentures. On conversion, the debenture holders get equal
• Optionally Convertible Debentures :  These debentures can be converted into equity by the investor at his will in exchange for shares at a price fixed by the company at the time of issuing the debentures.

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