'These debentures are issued with a specified rate of interest which may either be fixed or floating. The floating interest rate is usually tagged with the bank rate'

Which of the following type of debentures is being referred here?

Specific Coupon Rate Debentures

The correct answer is option 1- Specific Coupon Rate Debentures.

Specific Coupon Rate Debentures are issued with a specified rate of interest, which is called the coupon rate. The specified rate may either be fixed or floating. The floating interest rate is usually tagged with the bank rate.

OTHER OPTIONS-

• Zero Coupon Rate Debenture do not carry a specific rate of interest. In order to compensate the investors, such debentures are issued at substantial discount and the difference between the nominal value and the issue price is treated as the amount of interest related to the duration of the debentures.

• Secured Debentures refer to those debentures where a charge is created on the assets of the company for the purpose of payment in case of default. The charge may be fixed or floating. A fixed charge is created on a specific asset whereas a floating charge is on the general assets of the company. The fixed charge is created against those assets which are held by a company for use in operations not meant for sale whereas floating charge involves all assets excluding those assigned to the secured creditors.

• Unsecured debentures do not have a specific charge on the assets of the company. However, a floating charge may be created on these debentures by default. Normally, these kinds of debentures are not issued.