Debentures hold an important position in the overall capital structure of most companies. Whereas equity and preference capital represents owner s funds, debentures represent borrowed funds. Debentures are fully secured. They may carry a buy-back option given by the company. The debentures of most companies are listed on stock-exchange to ensure liquidity.
Interest earned from debentures is fully taxable.
In a cumulative scheme, interest is compounded at half yearly intervals and paid along with the principal and premium. If any, In the non-cumulative case, interest is usually paid half yearly want a steady income over a period of time. Credit ratings are given for debenture schemes also. However, no credit rating is required in the case of fully convertible debentures where conversion takes place within 18 months from the date of allotment. During the late 80s, several public sector companies entered the capital market to raise money through issue of bonds, including well-known public sector companies like NTPC, NHPC, ITI, Railway Finance Corporation, Konkan Railway corporation,etc.