Disadvantages of Debentures

• Debentures are not suitable for all Companies. It is not suitable for companies with fluctuating income and companies producing goods, which have an elastic demand.
• Permanent Burden.
• Requires huge Fixed Assets.
• No Voting Rights.
• Difficulty in Repayment.
• Affecting the capacity to raise Loans.

  What are the pros and cons of debentures?

  Companies use debentures when they need to borrow the money at a fixed rate of interest for its expansion….Advantages of Debentures

  • Investors who want fixed income at lesser risk prefer them.
  • As a debenture does not carry voting rights, financing through them does not dilute control of equity shareholders on management.

  Can debentures be sold?

  NCDs cannot be withdrawn before maturity. Since NCDs are listed on the stock market they can be sold in the secondary market. Bank FDs attract TDS if gains are beyond Rs. 10,000.

  What are the advantages and disadvantages of debentures?

  1. Debenture are Preferred by Investors. Since they attract cautious investors by offering definite security and safety of investment, issue of debentures can raise more funds. 2. Debenture are Less Investment Risk.

  How does a company raise money by issuing debentures?

  A company can raise funds through the issue of debentures, which has a fixed rate of interest on it. The debenture issued by a company is an acknowledgment that the company has borrowed an amount of money from the public, which it promises to repay at a future date.

  What’s the difference between a term loan and a debenture?

  The difference between the terms – Debentures, Bank loan, equity shares, and bond. Since both debenture and term loan is a type of debt financing, they share basic characteristics of debt and hence their advantages and disadvantages are also similar.

  What happens to debentures in case of liquidation?

  Assets of the company are mortgaged in favor of debenture holder, in case of liquidation of the company, the sale value of these assets will be used first to redeem debentures. Equity Shareholders don’t get such facility of the mortgage.