Debentures are a type of long-term debt instrument used by companies in India to raise funds from the public or private investors. When a company issues debentures, it is essentially borrowing money, and in return, it agrees to pay interest at a fixed rate over a specified period and repay the principal amount at maturity. Unlike shares, debentures do not give ownership rights to the holder—they are purely financial obligations.
Debentures can be either secured (backed by the company’s assets) or unsecured (not backed by specific assets). They are typically issued with terms and conditions outlined in a debenture trust deed, and may be convertible (can be converted into shares later) or non-convertible.
In the Indian business context, debentures are commonly used by medium to large companies as a reliable funding option for expansion, infrastructure projects, or working capital. They are also governed by the Companies Act, 2013 and SEBI regulations, making them a compliant financing tool for registered companies.
For small business owners and first-time entrepreneurs, understanding debentures is crucial if you're planning to scale operations through corporate finance. While startups may not issue debentures immediately, being familiar with the term prepares you for advanced funding stages or understanding the financial health of potential partners or competitors.
From a compliance standpoint, companies issuing debentures in India must meet specific disclosure norms, maintain a register of debenture holders, and file necessary forms with the Ministry of Corporate Affairs (MCA). This ensures transparency and protects the interests of investors.
In short, debentures are an important financial instrument for structured borrowing, helping businesses raise capital without diluting ownership. For more details on how debentures function and their legal implications, refer to our dedicated article on debentures.