MeaningA debenture is a debt instrument issued by a company under its seal, acknowledging a debt and containing provisions with regard to the repayment of the principal and interest.
According to Section 2(12) of The Companies Act, 1956, the term debenture includes debentures, stocks, bonds and any other securities of a company, whether constituting a charge on the assets of the company or not.
The following are the characteristic features of a debenture:
- It is a debt instrument.
- It is a document which acknowledges the loan accepted by a company.
- Interest is payable at a predetermined fixed rate.
- The principal amount is repaid at the end of a specified period.
- It may or may not create charge on the assets of the company.
- It can be traded through stock exchanges.