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168 Corporate Finance BRILLIANT’S

3. Security: Debentures are either secured 3. {gŠ`mo[aQ>r… {S>~|Mg©, gwa{jV AWdm Agwa{jV
or unsecured. If the debenture-holders have hmoVo h¡Ÿ& `{X {S>~|Ma hmoëS>g© H$m H§$nZr H$s {H$gr g§n{Îm
lien on any asset of the company, they are
na A{YH$ma hmoVm h¡ Vmo do {gŠ`moS>© H$hcmVo h¢Ÿ& Bg pñW{V
known as secured. In this case, if the company
defaults, the trustee can seize the security on _| `{X H§$nZr, {Xdm{c`m hmo OmVr h¡ Vmo {S>~|Ma-hmoëS>a H$s
behalf of the debenture-holders. Va\$ go Q´>ñQ>r, {gŠ`mo[aQ>r H$mo OãV H$a gH$Vm h¡Ÿ&
In India, debentures are usually secured ^maV _|, {S>~|Mg© gm_mÝ`V… H§$nZr H$s dV©_mZ Am¡a
by a charge on the present and future immov- ^{dî` H$s pñWa g§n{Îm`m| Ho$ gmnoj gwa{jV {H$E OmVo h¢Ÿ&
able assets of the company. This is called equi- Bgo BpŠdQ>o~c _m°Q>©JoO H$hVo h¢Ÿ& O~ {S>~|Mg© {H$gr
table mortgage. When debentures are not pro-
tected by any security, they are known as un- {gŠ`mo[aQ>r Ûmam gwa{jV Zht {H$E OmVo h¢ Vmo CÝh| Agwa{jV
secured or naked debentures. If the debentures `m Iwco {S>~|Mg© H$hm OmVm h¡Ÿ& `{X {S>~|Mg© Agwa{jV hmo
are unsecured, it will generally be difficult for Vmo \$_© Ho$ {cE {ZdoeH$Vm©Am| H$mo Cg_| {XcMñnr coZo Ho$
the firm to attract investors to subscribe to {cE àmoËgm{hV H$aZo _| H${R>ZmB© AmVr h¡Ÿ& hmcm§{H$ {ZdoeH$Vm©
them. Security, however, does not necessarily
ensure the safety of a debenture/bond from the H$s Ñ{ï> go {gŠ`mo[aQ>r, {S>~|Ma/~mÊS> H$s gwajm gw{ZpíMV
investor’s point of view. Zht H$aVr h¡Ÿ&
4. Redemption: Debentures are mostly 4. nwZ… àmpßV… Á`mXmVa {S>~|Mg© nwZ… àmßV {H$E
redeemable. They are redeemed on maturity. OmVo h¢Ÿ& `o _¡À`mo[aQ>r na nwZ… àmßV hmoVo h¡Ÿ& {S>~|Mg© H$mo
The debentures can be redeemed by provision Sy>~V YZ Ho$ àmdYmZ Ûmam nwZ… àmßV {H$`m Om gH$Vm h¡Ÿ&
of a sinking fund. The fund is under the control
of the trustee, who redeems the debenture `h YZ, Q´>ñQ>r Ho$ {Z`§ÌU _| hmoVm h¡ Omo {S>~|Ma H$mo _mH}$Q>
either by purchasing them in market or in some _| IarX H$a `m AÝ` VarHo$ go CZH$s àmpßV H$aVm h¡Ÿ&
other way. The advantage of redemption of Sy>~V YZam{e go {S>~|Ma H$s nwZ… IarXr H$m cm^ `h h¡
debenture by sinking fund is that the amount {H$ _¡À`mo[aQ>r na Xr OmZo dmcr YZam{e gmc-Xa-gmc
payable on maturity reduces year by year. If H$_ hmoVr OmVr h¡Ÿ& `{X Eogr Sy>~V YZam{e H$s ì`dñWm Z
such sinking fund is not maintained, it will be
very difficult to pay the whole amount of H$s OmE Vmo V` {V{W na {S>~|Mg© H$s g§nyU© YZam{e H$m
debentures immediately on due date. It will Vwa§V ^wJVmZ H$aZm _wpíH$c hmoJmŸ& `h \$_© H$s ì`mdhm`©Vm
endanger the firms’ viability. H$mo ZwH$gmZ nhþ±MmEJrŸ&
5. Claim on assets and income: Deben- 5. g§n{Îm`m| Am¡a Am` na Xmdm… A§eYm[a`m| go
ture-holders have a claim on the company’s nhco H§$nZr H$s Am` na {S>~|Ma hmoëS>g© H$m Xmdm hmoVm h¡Ÿ&
earnings prior to that of the shareholders.
nydm©{YH$ma Am¡a gm_mÝ` A§eYm[a`m| H$mo H$moB© ^r cm^m§e XoZo
Debenture’s interest has to be paid before pay-
ing any dividends to preference and ordinary Ho$ nyd© {S>~|Ma H$m ã`mO MwH$m`m OmVm h¡Ÿ& EH$ H$ånZr H$mo
shareholders. A company can be forced into {Xdm{c`m Kmo{fV {H$`m Om gH$Vm h¡ `{X dh {S>~|Ma-
bankruptcy, if it fails to pay interest to deben- hmoëS>g© H$mo ã`mO XoZo _| Ag\$c hmo OmEŸ& Bg{cE
ture-holders. Therefore, in practice, the deben- ì`mdhm[aH$Vm _| H§$nZr Ûmam gm_Zm H$s OmZo dmcr J§^ra
ture-holder’s claim on income is generally hon- Am{W©H$ H${R>ZmB©`m| H$mo N>mo‹S>H$a gm_mÝ`V… Am` na {S>~|Ma
ored except in the case of the extreme financial
difficulty faced by the company. hmoëS>a Ho$ Xmdo H$mo àmW{_H$Vm Xr OmVr h¡Ÿ&