Bond and Debenture: Meaning & Definition

Bond or Debenture is an interest bearing promise to pay periodic income regularly and repay specified sum of money borrowed (known as principal) at particular date. In other word, bond or debenture is a debt security which simply refers to the claim on series of periodic income. 
The company pays interest annually at predetermined coupon rate and refund face value at the end of the maturity period.

For example, A company issues 10% coupon bond at a par value of Rs.1000 with 10 years maturity. In this example, investors can claim Rs.100 (10% of Rs.1000) per bond as a interest for next 10 years and at the last of maturity period they also claim invested amount.

In India, leople often use bond and debenture interchangeably but in US and other Western countries bonds are considered more secure as it is backed by collateral. On the other hand, debenture is only backed by borrower's promise.

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