A company raises capital in two significant ways. Either by Issuing stocks (IPO or FPO) or by Issuing Debentures(Taking a loan). A debenture is simply a document by a company committing to pay a fixed interest for a fixed amount of time to whoever is the holder.
What is the process of IPO?
An initial public offering (IPO) refers to the process of offering shares of a private corporation to the public in a new stock issuance. Companies hire investment banks to market, gauge demand, set the IPO price and date, and more.
How many types of IPO are there?
There are two common types of IPOs: a fixed price and a book building offering. A company can use either type separately or combined. By participating in an IPO, an investor can buy shares before they are available to the general public in the stock market.
Why do people invest in debentures?
Convertible debentures are attractive to investors that want to convert to equity if they believe the company’s stock will rise in the long term. However, the ability to convert to equity comes at a price since convertible debentures pay a lower interest rate compared to other fixed-rate investments.
How are debentures and bonds alike and different?
Therefore, debentures are like subset of bonds. Both debentures and bonds are an external source of debt financing. The companies or Government issue either of the instrument to finance their long term need of financing. Debenture holders are paid periodical interest on their loan and the principal is paid back at the completion of the entire term.
Where can I buy a secured bond or debenture?
However, like traditional bonds and other investments, the average investor can buy debentures through a brokerage firm. To understand what a debenture is, it’s helpful to review the various ways that companies can borrow money. A “secured” debt is a type of bond that is backed by something.
What are the different types of debentures in 2016?
There are two types of debentures as of 2016: convertible and nonconvertible. Convertible debentures are bonds that can convert into equity shares of the issuing corporation after a specific period of time.
Can a government issue a debenture to an investor?
Thus, the government can issue debentures, and investors will purchase them simply because they are confident in the government’s ability to pay them back. In some cases, a company will allow an investor to convert their debenture into shares of the company.
