Debenture

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DEFINITION of 'Debenture'

A type of debt instrument that is not secured by physical assets or collateral. Debentures are backed only by the general creditworthiness and reputation of the issuer. Both corporations and governments frequently issue this type of bond in order to secure capital. Like other types of bonds, debentures are documented in an indenture.

INVESTOPEDIA EXPLAINS 'Debenture'

Debentures have no collateral. Bond buyers generally purchase debentures based on the belief that the bond issuer is unlikely to default on the repayment. An example of a government debenture would be any government-issued Treasury bond (T-bond) or Treasury bill (T-bill). T-bonds and T-bills are generally considered risk free because governments, at worst, can print off more money or raise taxes to pay these type of debts.

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RELATED FAQS
  1. What are the differences between preference shares and debentures?

    There are many differences between preference shares and debentures, with the biggest difference being that a preference ... Read Full Answer >>
  2. What legal recourse do I have if the counterparty in a debenture agreement does not ...

    A debenture agreement provides a way to invest in a business or entity and receive a defined rate of return. Unlike buying ... Read Full Answer >>
  3. How risky is it to enter into a debenture agreement?

    The risk of entering into a debenture agreement is dependent on the trustworthiness, and ultimately the financial viability, ... Read Full Answer >>
  4. How is a debenture stock different from a regular debenture?

    Private businesses and governments sometimes issue debt securities to raise additional capital. These debt instruments are ... Read Full Answer >>
  5. What is the difference between nonconvertible debentures and fixed deposits?

    Debentures and fixed deposits are two different ways of investing money. A debenture is an unsecured bond. Essentially, it ... Read Full Answer >>
  6. How does the bond market react to changes in the Federal Funds Rate?

    The bond market is highly sensitive to changes in the federal funds rate. When the Federal Reserve increases the federal ... Read Full Answer >>
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