What Are Convertible Debentures?

What Are Convertible Debentures?

What Are Convertible Debentures?

• The Convertible Debentures are considered as a type of loan that can be converted into the stock of the company after a specified time period in the choice of the holder or the issuer in unusual circumstances.

These are various issued with the intent to collect money to expand or maintain the business operations at low-interest rate.

• The debentures is used as long-term debt instruments on which the company is mandated to pay interest to its holders. At times, the debentures are issued with a choice of convertibility in which the debenture holder can get his debentures changed into the stock of the company, either fully or partly.

• Depending upon the time factor, there are three types of convertible debentures: • Compulsory convertible debentures offer for the conversion within 18 months of the issue

• Optional convertible debentures offer for the conversion within 36 months of the issue.

• Debenture with “call “ or “put” option in case the conversion outstrips 36 months.

What Are Convertible Debentures?

• The convertible debentures are advantageous to the investor as they have an opportunity to become the owner of the company and may leave in case the company is at big loss. However, the convertible debentures are highly risky and unsecured as well. In case the company goes bankrupt, the holder gets his money only after all the secured creditors get their money.

• Convertible debentures are a rapid and relaxed mode of finance for a business organization. The business can get funds by issuing debentures and make use of it towards the growth of the business.

• Conclusion • Convertible debentures are a quick and easy mode of finance for a business organization. The business can avail funds by issuing debentures and utilize it towards the growth of the business. These debentures give an opportunity to the investor to become a member of the company by converting them into equity shares at the time of maturity. To sum up, the additional benefit of taxes on these debentures also plays a significant role while selecting it as a source of finance for the business Read More :- https://efinancemanagement.com/sources-of-finance/convertible-debentures