What is difference between bonds and debentures ?

1.	What is difference between bonds and debentures ?
Answer» \tBonds are the financial instruments issued by Government agencies and also by Private organizations for raising additional fund from the public. Debentures are issued by private/public companies for raising capital from the investors.\tBonds are backed by the asset of the issuer whereas debentures are not secured by any of the physical assets or collateral. Debentures are issued and purchased only on the creditworthiness and reputation of the issuing party.\tThe interest rate of bonds is generally lower than debentures. The lower interest rate depicts the low-risk factor. On the other hand, debentures give you a high-interest rate but they are unsecured in nature hence the risk factor is more here.\tThe interest on a bond is given to the bondholder in monthly, half-yearly or annually. The interest amount never differs as the interest paid is not depended on the performance of the issuer. Adversely, if you buy debentures, your interest rate may be high but the interest payment will be periodic depending on the performance of the issuer.\tThere is no to the minimum risk involved in bond investments but the risk factor is high in debentures.\tAt the time of liquidation, the bondholders are always given preference.\tIf you own bonds, you can never convert it to equity shares, but debentures can be transferred to equity funds.

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