Written by the Fiveable Content Team • Last updated September 2025
Written by the Fiveable Content Team • Last updated September 2025
Definition
A debenture is a type of long-term debt instrument that is not secured by physical assets or collateral. It relies on the creditworthiness and reputation of the issuer.
5 Must Know Facts For Your Next Test
Debentures typically have a fixed interest rate paid periodically to investors.
They are often used by companies to raise capital for expansion or other financial needs.
Debentures can be convertible, allowing them to be converted into equity shares after a certain period.
In case of liquidation, debenture holders are paid before equity shareholders but after secured creditors.
The risk associated with debentures is higher compared to secured bonds due to the lack of collateral.
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Related terms
Bond: A debt security where the issuer owes the holders a debt and is obligated to pay interest and repay the principal at maturity.
Convertible Bond: A type of bond that can be converted into a predetermined number of shares in the issuing company.
Secured Loan: A loan backed by collateral, which can be claimed by the lender if the borrower defaults.