What are bonds and debentures?

What are bonds and debentures?

Bonds are debt securities issued by governments, municipalities, corporations, or other entities to raise capital. When investors purchase a bond, they essentially lend money to the issuer in exchange for periodic interest payments, known as coupon payments, and the eventual repayment of the principal amount at maturity. Bonds typically have a fixed interest rate and maturity date, providing investors with a predictable income stream and a return on their investment upon maturity.

Debentures are a type of bond that is not secured by physical assets or collateral. Instead, they are backed only by the creditworthiness and reputation of the issuer. Debentures are typically unsecured, meaning that in the event of default, debenture holders are considered general creditors and may not have a claim to specific assets of the issuer. Debentures often offer higher interest rates than secured bonds to compensate investors for the higher risk of default.​

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