What is debentures and its advantage
Answers
Answer:
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Advantages of Debentures
As a debenture does not carry voting rights, financing through them does not dilute control of equity shareholders on management. Financing through them is less costly as compared to the cost of preference or equity capital as the interest payment on debentures is tax deductible.
Explanation:
Debentures are a debt instrument used by companies and government to issue the loan. The loan is issued to corporates based on their reputation at a fixed rate of interest. Debentures are also known as a bond which serves as an IOU between issuers and purchaser.
Advantages of Debentures
*Investors who want fixed income at lesser risk prefer them.
*As a debenture does not carry voting rights, financing through them does not dilute control of equity shareholders on management.
*Financing through them is less costly as compared to the cost of preference or equity capital as the interest payment on debentures is tax deductible.
*The company does not involve its profits in a debenture.
*The issue of debentures is appropriate in the situation when the sales and earnings are relatively stable.