Specimen presentation of debentures certicate for dierent kinds of debentures Types Types of Debentures Debentures Debentures are classied into various types. These are redeemable, irredeemable, irredeemable, perpetual, convertible, non convertible, fully, partly, secured, mortgage, unsecured, naked, rst mortgaged, second mortgaged, bearer, xed, oating rate, coupon rate, ero coupon, secured premium notes, callable, puttable, etc. Types Types of Debentures Debentures Debentures Debentures are classied classied into dierent types types based on their tenure, redemption, redemption, mode of redemption, convertibility, security, transferability, type of interest rate, coupon rate, etc. !ollo"ing are the various types of debentures vis#a#vis their basis of classication. $edemption % Tenure $edeemable and &rredeemable '(erpetual) Debentures* $edeemable debentures carry carry a specic date of redemption redemption on the certicate. The company is legally bound to repay the principal amount to the debenture holders on that date. +n the other hand, irredeemable irredeemable debentures, also kno"n as perpetual debentures, do not carry any date of redemption. This means that there is no specic time of redemption of these debentures. They are redeemed redeemed either on the liuidation liuidation of the company or or "hen the company chooses to pay them o to reduce their liability by issues a due notice to the debenture debenture holders beforehand. -onvertibility -onvertible and on -onvertible Debentures* -onvertible debenture holders have an option of converting their holdings into euity e uity shares. The rate of conversion and the period after "hich the conversion "ill take eect are declared in the terms and conditions of the agreement agreement of debentures at the time of issue. +n the contrary, non convertible debentures are simple debentures debentures "ith no such option of getting converted into euity. euity. Their state "ill al"ays remain of a debt and "ill not become euity at any point of time. !ully and (artly -onvertible Debentures* -onvertible Debentures are further classied into t"o / !ully and (artly (artly -onvertible. !ully convertible debentures are completely converted into euity "hereas the partly convertible debentures have t"o parts. -onvertible part is converted into
euity as per agreed rate of exchange based on agreement. on convertible part becomes as good as redeemable debenture "hich is repaid after the expiry of the agreed period.
Security Secured '0ortgage) and 1nsecured 'aked) Debentures* Debentures are secured in t"o "ays. +ne "hen the debenture is secured by charge on some asset or set of assets "hich is kno"n as secured or mortgage debenture and another "hen it is issued solely on the credibility of the issuer is kno"n as naked or unsecured debenture. 2 trustee is appointed for holding the secured asset "hich is uite obvious as the title cannot be assigned to each and every debenture holder. !irst 0ortgaged and Second 0ortgaged Debentures* Secured % 0ortgaged debentures are further classied into t"o types / rst and second mortgaged debentures. There is no restriction on issuing dierent types of debentures provided there is clarity on claims of those debenture holders on the prots and assets of the company at the time of liuidation. !irst mortgaged debentures have the rst charge over the assets of the company "hereas the second mortgage has the secondary charge "hich means the realiation from the assets "ill rst fulll obligation of rst mortgage debentures and then "ill do for second ones. Transferability % $egistration $egistered 1nregistered Debentures '3earer) Debenture* &n the case of registered debentures, the name, address, and other holding details are registered "ith the issuing company and "henever such debenture is transferred by the holder4 it has to be informed to the issuing company for updating in its records. +ther"ise the interest and principal "ill go the previous holder because company "ill pay to the one "ho is registered. 5hereas, the unregistered commonly kno"n as bearer debenture. can be transferred by mere delivery to the ne" holder. They are considered as good as currency notes due to their easy transferability. The interest and principal is paid to the person "ho produces the coupons, "hich are attached to the debenture certicate. and the certicate respectively. Type of &nterest $ates !ixed and !loating $ate Debentures* !ixed rate debentures have xed
interest rate over the life of the debentures. -ontrarily, the oating rate debentures have oating rate of interest "hich is dependent on some benchmark rate say 6&3+$ etc. o -oupon $ate 7ero -oupon and Specic $ate Debentures* 7ero coupon debentures do not carry any coupon rate or "e can say that there is ero coupon rate. The debenture holder "ill not get any interest on these types of debentures. eed not to get surprised, for compensating against no interest, companies issue them at a discounted price "hich is very less compared to the face value of it. The implicit interest or benet is the dierence bet"een the issue price and the face value of that debenture. These are also kno"n as 8Deep Discount 3onds9 .2ll other debentures "ith specied rate of interest are specic rate debentures "hich are :ust like a normal debenture. Secured (remium otes % Debentures* These are secured debentures "hich are redeemed at a premium over the face value of the debentures. They are similar to ero coupon bonds. The only dierence is that the discount and premium. 7ero coupon bonds are issued at discount and redeemed at par "hereas the secured premium notes are issued at par and redeemed at premium. 0ode of $edemption -allable and (uttable Debentures % 3onds* -allable debentures have an option for the company to buyback and repay to the investors "hereas in case of puttable debentures, the option lies "ith the investors. (uttable debenture holders can ask the company to redeem their debenture and ask for principal repayment.
