Any organisation whether they are Public, Private or Government entity requires funds for different purposes like infrastructure development, day to day expenses, expansion of operations or setting up a new project.
There is two way to meet their requirements of funds for any type of entities – Debt Funds and Equity Funds. In the case of debt funds, the organisations don’t require to dilute ownership to raise funds, unlike equity funds.
Even if, bonds and debentures are debt instruments still there are some key difference between bonds and debentures which are compared below.
Bonds vs Debentures (Comparison Table):
|Issued by||Government & Public Sector Companies||Private Companies|
|Tenure||Long Tenure||Short and Medium Tenure|
|Security||Always Secured||May or may not be secured|
|Risks||Less Risky||More Risky|
|Interest Rate||Lower rate of Interest||Higher rate of Interest|
|Liquidation||Given priority||comparetively less|
|Convertibility||Can not be converted to Equity Shares||Can be converted to Equity Shares|
Difference between Bonds and Debentures:
1) Who issues Bonds or debentures?
Bonds are mostly issued by the government entities and public sector companies whereas Debentures are issued by the private sector companies.
Bonds are always backed up by collateral such as physical assets or other security, on the other hand, debentures may or may not be secured.
4) Risk Measures:
5) Interest Rates:
Although both Bonds and debentures offer fixed interest rates, yet the bonds provide a lower rate of interest as compared to debentures.
Bondholders are given priority when it comes to liquidation whereas debenture holders are not as much.
Bonds can’t be converted to equity shares, on the other hand, debentures can be converted to equity shares after a certain time period.
7 Key differences between Bill of Exchange and Promissory Notes
What are Debentures?
Types of Debentures