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Bonds and Debentures

Bonds and debentures are two financial assets that are issued by the borrowing company, for a price that is equal to, less than, or more than its face value, but they are not the same. There are many differences between them. They are discussed in tabular form.

Difference Between Bonds and Debentures

Difference Bonds Debentures
Meaning A bond is a financial instrument showing the indebtedness of the issuing body to its holders. A debt instrument used to raise long-term finance is known as Debentures.
Owner The owner of a bond is called a bondholder. The owner of a debenture is called a debenture holder.
Interest Rate Low High
Issued by Government Agencies, financial institutions, corporations, etc. Companies
Payment Accrued Periodical
Collateral Bonds get secured by the collateral or physical assets of the issuing company. Debentures do not get secured by the collateral or physical assets of the issuing company. Lenders purchase these instruments solely based on the reputation of the issuing company.
Risk factor Bonds are less riskier than debentures because they have the security of the physical assets of the issuing company. Debentures are riskier than bonds because they do not have the security of the physical assets of the issuing company.
Tenure These are long-term investments and their tenure is generally higher than debentures. These are generally short to medium-term investments and their tenure is usually lower than bonds.

Types of Debentures

There are eight main types of debentures issued by a company, which are as follows:

  • Secured debentures
  • Convertible debentures
  • Registered debentures
  • Redeemable debentures
  • Unsecured debentures
  • Non-redeemable debentures
  • Non-convertible debentures
  • Bearer debentures

Types of Bonds

There are ten main types of bonds issued by government agencies, financial institutions, and corporations which are as follows:

  • Fixed-rate bonds
  • War bonds
  • Perpetual bonds
  • Inflation-linked bonds
  • Floating rate bonds
  • Bearer bonds
  • Climate bonds
  • Serial bonds
  • Subordinated bonds
  • Zero-interest rate bonds