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There are 2 main types of debentures:
- Convertible debentures – Debentures which can be converted into shares at a specified date or during a period of time. Convertible debentures usually have a lower interest rate compared to non- convertible debentures.
- Non-convertible debentures – Debentures that are converted into equity shares of the debenture issuing company.
The important types of Debentures are as follows:
- Cumulative – Irrespective of the fact of profit or no profit in a year, the interest has to be paid and in case of no profit in a particular, the same gets accumulated
- Non-cumulative –The interest or the dividend is not paid in case of no profits in a particular year.
- Zero Coupon Bonds – These bonds do not carry interest, instead they are sold at a deep discount from its maturity value. The difference between the maturity value and the issue price is the gain or interest for the investor.
- Convertible Debentures – Convertible Debentures give the debenture holders an option to exchange the debentures for equity shares after a specific period.
- Fully Convertible Debentures – These debentures are converted into equity shares after the lapse of the specified period.
- Partly Convertible Debentures – In this kind of debentures, a portion of the debentures is converted into equity shares and the balance is not converted into equity. The unconvertible part of the debentures is redeemed after the lapse of the specified period.
