The following are the features of Debenture: (A) Debentures can be co…

The following are the features of Debenture:

(A) Debentures can be converted into shares if the terms of issue are so provided, and in that case these are known as convertible debentures.

(B) Debentures are generally secured and carry a fixed or floating charge over the assets of the company.

(D) The debentures are issued for a specified period and repayable on the expiry of that period.

Choose the correct answer from the options given below:

Answer & explanation

Correct answer: option 2

The correct answer is Option (2) → (A), (B) and (D) only

A debenture is a written acknowledgement of a debt taken by the company. Because it is a loan, the company promises a fixed rate of interest and repayment after a fixed period, and it usually backs the loan with a charge on its assets.

(A) Debentures can be converted into shares if the terms of issue are so provided, and in that case these are known as convertible debentures. Correct. Conversion is allowed where the terms of issue say so; such debentures are called convertible debentures.

(B) Debentures are generally secured and carry a fixed or floating charge over the assets of the company. Correct. The charge gives debenture holders a claim on the assets if the company fails to pay.

(C) The rate of interest on debentures may vary from year to year depending upon the profits of the company. Incorrect. It is the dividend on shares that varies with profits. Interest on debentures is fixed in advance and is payable even when there is no profit.

(D) The debentures are issued for a specified period and repayable on the expiry of that period. Correct. A debenture is redeemed at the end of its term, unlike share capital, which is normally not returned during the life of the company.

NCERT (2026-27 edition):
Distinction between Shares and Debentures – “… Return: The return on shares is known as dividend while the return on debentures is called interest. The rate of return on shares may vary from year to year depending upon the profits of the company but the rate of interest on debentures is prefixed.”

NCERT (2026-27 edition):
Distinction between Shares and Debentures – “… Repayment: Normally, the amount of shares is not returned during the life of the company, whereas, generally, the debentures are issued for a specified period and repayable on the expiry of that period.”

NCERT (2026-27 edition):
Distinction between Shares and Debentures – “… Security : Shares are not secured by any charge whereas the debentures are generally secured and carry a fixed or floating charge over the assets of the company. Convertibility: Shares cannot be converted into debentures whereas debentures can be converted into shares if the terms of issue so provide, and in that case these are known as convertible debentures.”