Merits:

• It is preferred by investors who want fixed income at lesser risk. 
• Debentures are fixed charge funds and do not participate in profits of the company. 
• The issue of debentures is suitable in the situation when the sales and earnings are relatively stable. 
• As debentures do not carry voting rights, financing through debentures does not dilute control of equity shareholders on management. 
• Financing through debentures is less costly as compared to cost of preference or equity capital as the interest payment on debentures is tax deductible.

Demerits: 

• As fixed charge instruments, debentures put a permanent burden on the earnings of a company. There is a greater risk when earnings of the company fluctuate. 
• In case of redeemable debentures, the company has to make provisions for repayment on the specified date, even during periods of financial difficulty. 
• Each company has certain borrowing capacity. With the issue of debentures, the capacity of a company to further borrow funds reduces.