If you're a retail investor exploring fixed-income opportunities beyond fixed deposits, debentures might be on your radar. This primer walks through the essentials.
What is a debenture?
A debenture is a debt instrument issued by a company to borrow money from investors. In return, the issuer commits to:
- Pay regular interest (coupon) at a specified rate
- Return the principal at maturity
Types of debentures
Debentures come in several flavors:
- Secured vs Unsecured: Secured debentures are backed by specific assets; unsecured rely on the issuer's general credit
- Convertible vs Non-convertible (NCD): Convertible debentures can be exchanged for equity at maturity
- Listed vs Unlisted: Listed debentures trade on exchanges; unlisted are typically held to maturity
The trustee's role
Every debenture issuance requires a SEBI-registered debenture trustee — an independent party that protects investor interests. The trustee monitors covenants, holds security (if any), and represents investors in case of default.
What to check before investing
- Credit rating (AA and above is generally considered safe)
- Asset cover (for secured debentures, look for 1.25x or higher)
- Issuer's financial health and business stability
- Trustee's reputation and track record
