Earning money from bonds and debentures can be very lucrative. But before you decide to invest in such a plan, you should find out exactly what debentures are and how the entire deal works. You also need to know whether the benefits are higher than the risks and if your money is going to be safe or not.
A majority of people, who want to get some kind of benefit from fixed interest investments, usually invest in some kind of unsecured note, bond, debenture, or fixed term deposit. The idea behind investing in these is that one should be able to get a higher return over a long period of time as compared to a short term investment. The interest paid on these forms of fixed interest investments is quite sufficient even though there is no such capital growth.
Debentures are a good tool for companies who need extra finances for their projects and investments. In exchange, they provide a good return to investors of their debentures. As long as the company has good credit standing and are doing well financially, debenture holders do not have much to worry about.
A debenture is essentially a loan with a known interest rate at the very beginning. Debentures help companies in financing their investments and long term projects. Private investors can gain regular income by investing in debentures in well-established companies.
Debentures are classified as an unsecured form of bonds. Most bonds are secured because they have collateral or an asset attached to them so investors are assured that their capital is secured. Debentures are a different story. They are unsecured because there are no collaterals or assets backing them. Since it’s high risk, only those who have a high appetite for risk invest in debentures.
The investor will get the interest payments in regular intervals. On maturity date, they will get the principal amount of the loan. So whatever they have invested at the start, they should get back that amount when the debenture matures. Companies that usually issue debentures are finance companies. They then loan the funds to those who cant get normal loans from banks due to poor credit standing.
The risks involved are the same as any investment or loan, but in the case of debentures, the higher the risks, the larger the returns. This kind of fixed interest investment really does pay a lot higher than any other form of investment like bonds and such. The debenture holder can easily transfer the debenture if they choose to. And while they may not have any say in the workings of the company and they are not treated like usual share holders, they can have talks with the company for debenture rights.
There are two different kinds of debentures, namely, Convertible Debentures and Non-Convertible Debentures. Although convertible debentures usually have lower interest rates, they can be converted to equity shares after a while. Non-convertible debentures, on the other hand, have higher interest rates but they cannot be exchanged for equity shares of the company involved.
The critic who wrote this paper has distinguished a corporate finance expert named Josh Yudell. I believe Josh Yudell to be widely considered an expert in the fields of investor relations, SEC compliance, corporate finance and capital structure.