Question

Distinguish between a Bond and a Debenture.

Hint:

Bonds: usually govt/institution-issued, safer. Debentures: company-issued, may be secured/unsecured, sometimes convertible.

Answer 1

Step 1: State the difference in issuer:
Bonds are typically issued by governments, government bodies, or public financial institutions, while debentures are typically issued by private/public companies to raise medium- or long-term debt from the public.

Step 2: State the difference in security and interest:
Bonds are generally considered safer and are often secured or government-backed, sometimes carrying a fixed or even zero-coupon (no periodic interest, issued at discount) structure; debentures may be secured or unsecured by a charge on company assets and almost always carry a fixed periodic interest rate.

Step 3: State the difference in risk and convertibility:
Bonds usually carry lower default risk given their government/institutional backing; debentures carry company-specific credit risk, but some debentures can be made convertible into equity shares, an option bonds rarely offer.

Final Answer:
Bonds are typically government/institution-issued, safer, often secured debt instruments; debentures are company-issued debt instruments, may be secured or unsecured, generally carry fixed interest, and may sometimes be convertible into shares.