The word ‘debenture’ has been derived from a Latin word ‘debere’ which means to borrow. Debenture is a written instrument acknowledging a debt under the common seal of the company. It contains a contract for repayment of principal after a specified period or at intervals or at the option of the company and for payment of interest at a fixed rate payable usually either half-yearly or yearly on fixed dates.
According, to section 2(12) of The Companies Act,1956 ‘Debenture’ includes Debenture Stock, Bonds and any other securities of a company whether constituting a charge on the assets of the company or not. Also there are multiple types of debentures, a company can issue.
Bond is also an instrument of acknowledgement of debt. Traditionally, the Government issued bonds, but these days’ bonds are also being issued by semi-government and non-governmental organisations.
The terms ‘debentures’ and ‘Bonds’ are now being used inter-changeably.
The different types of debentures have been explained in brief as follows:-