A debenture is a medium or long term debt format that large companies use to borrow money. It is normally a loan that should be repaid on a specific date, but some debentures are irredeemable securities (sometimes referred to as perpetual debentures).

The majority of debentures come with a fixed interest rate. This interest must be paid before dividends are paid to shareholders.

Types of Debentures: 

Redeemable Debentures: Redeemable debentures earn, a specific date of redemption on the certificate. The company is legally bound to repay the principal amount to the debenture holders on that date.

Irredeemable (Perpetual) Debentures: On the other hand, irredeemable debentures, also known as perpetual debentures, do not cam any date of redemption. This means that there is no specific time of redemption of these debentures. They are redeemed either on the liquidation of the company or when the company chooses to pay them off to reduce their liability by issues a due notice to the debenture holders beforehand.

Convertible Debentures: Convertible debenture holders have an option of converting their holdings into equity shares. The rate of conversion and the period after which the conversion will take effect are declared in the terms and conditions of the agreement of debentures at the time of issue.

Non Convertible Debentures: Non-convertible debentures are simple debentures with no such option of getting converted into equity. Their state will always remain of debt and will not become equity at any point in time.