A debenture is a document issued by a company as an evidence of a debt from the company with or without a charge on the assets of the company.

Advantages of Debentures from View Point of a Company: 

• Funds raised by the company by way of debentures are required to be repaid during the lifetime of the company at the time stipulated by the company. As such, debenture is not a source of permanent capital. It can be considered as a long term source.

• In financial terms, debentures prove to be a cheap source of funds from the company’s point of view.

Disadvantages of Debentures from View Point of Company: 

(i) By issuing the debentures, a company is under two types of risks. These are payment of the interest at a fixed rate, irrespective of the non-availability of profits and repayment of the principal amount at the pre-decided time. If earnings of the company are not stable or if the demand for the products of the company is highly elastic, debentures prove to be a very risky proposition for the company. Any adverse change in the earnings or demand may prove to be fatal for the company.

(ii) Debentures are usually a secured source for raising the long term requirement of funds and usually the security offered to the investors is the fixed assets of the company. A company which requires less investment in fixed assets, may find debentures as a wrong source of raising the long term requirement of funds as it does not have sufficient fixed assets to offer as security.