The following are the features of Debentures:
(A) The payment of interest is a charge on profits and is to be paid even if there is no profit.
(B) The debentures, which are issued for a specified period are repayable on the expiry of that period.
(C) If the debentures are generally secured, they carry a fixed or floating charge over the assets of the company.
(D) Debentures can not be converted into shares in any case.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → (A), (B) and (C) only
A debenture is an acknowledgement of a debt taken by the company. Its features follow from its being borrowed money rather than owners’ capital.
(A) The payment of interest is a charge on profits and is to be paid even if there is no profit. Correct. Interest is a cost of the loan, so it is payable whether or not the company earns a profit, unlike dividend.
(B) The debentures, which are issued for a specified period are repayable on the expiry of that period. Correct. A loan has a term; debentures are repaid when that term ends, while share capital is normally not returned during the life of the company.
(C) If the debentures are generally secured, they carry a fixed or floating charge over the assets of the company. Correct. Secured debentures are backed by a charge on the company’s assets, which protects the debentureholders if the company defaults.
(D) Debentures can not be converted into shares in any case. Incorrect. Debentures can be converted into shares if the terms of issue provide for it; such debentures are called convertible debentures.
NCERT (2026-27 edition):
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