An Ultimate Guide on Bonds and Debentures.
                     An Ultimate Guide on 
Bonds and Debentures
What is a Bond?
• A bond is a secured investment as it is secured by 
collaterals. 
• In bonds, an asset is pledged as the security of 
lending so that if the issuer fails to pay the sum, the 
bondholders can sell the asset to discharge their 
debts.
Source: financebuddha.com
Types of Bonds 
• Actively managed bonds
• Passively managed bonds
• Open end bond
• Closed end bond
• Exchange traded funds
Source: financebuddha.com
What is a Debenture?
• A debenture is another form of debt fund which is 
generally unsecured in nature. 
•  Debentures are not backed by any of the assets of 
the issuer hence depends only on the faith factors of 
the investor on the issuer. 
Source: financebuddha.com
Types of Debentures
• Secured debenture
• Unsecured debenture
• Convertible debenture
• Non-convertible debenture
Source: financebuddha.com
BOND VS DEBENTURE – THE KEY DIFFERENCES
Key difference 1
• Bonds are the financial instruments issued by 
Government agencies and also by Private 
organizations for raising additional fund from the 
public. 
• Debentures are issued by private/public companies 
for raising capital from the investors.
Source: financebuddha.com
Key difference 2
• The interest rate of bonds is generally lower than 
debentures. The lower interest rate depicts the low-
risk factor. 
• On the other hand, debentures give you a high-
interest rate but they are unsecured in nature hence 
the risk factor is more here.
Source: financebuddha.com
Key difference 3
• The interest on a bond is given to the bondholder in 
monthly, half-yearly or annually. The interest amount 
never differs as the interest paid is not depended on 
the performance of the issuer. 
• Adversely, if you buy debentures, your interest rate 
may be high but the interest payment will be periodic 
depending on the performance of the issuer.
Source: financebuddha.com
Key difference 4
• If you own bonds, you can never convert it to equity 
shares, but debentures can be transferred to equity 
funds.
Source: financebuddha.com
Key difference 5
• When it comes to the tenure period bonds are long-
term investments as compared to debentures. 
• However, this mostly depends on the issuing 
company/body.
Source: financebuddha.com