discerning exchangeable debentures
Saturday, January 29th, 2011Did you know that you can earn money through bonds as well as debentures? But of course, you have to understand first what debentures are and how they work. You also have to check your risk appetite so that you know if you can handle the risk profile of a debenture. The first rule in investing is never to lose money.
Fixed interest investments are for those who want to get regular fixed payments. In exchange for the consistent payments, they sacrifice capital growth potentials. Fixed interest instruments are bonds, debentures, and certificates of deposits. The return is higher if you invest in the tool for a long period of time. The longer the time horizon, the greater the interest rate you will receive.
Debentures are a common kind of fixed interest investment in corporate finance. This is a way for companies to borrow some money from people who are interested and in turn, they return a good amount of interest.
A debenture usually has a fixed interest rate so you know how much you will be getting at each interval. Debentures are a cheap way for companies to raise finance because it is fuss-free and doesn’t need complex assurance of payments like collateral and other security features.
Debentures are like bonds except they lack a safety feature. There is no asset or collateral that is attached to the debenture. Its essentially a loan with a high level of risk. Since there is no collaterals, there is no assurance of repayment. So if the company folds up suddenly, you wont get back your investment. But because its unsecured, the interest rate it carries is generally higher than bonds. The basic premise is that the greater the risk; the higher the return should be.
Upon maturity date, the investor will get back the entire amount they have loaned to the company. The interest payments are usually paid in constant intervals throughout the loan duration. Alternatively, the interest payments can also be received upon maturity date along with the principal amount. What finance companies do with the amount they raise from debentures is loan these funds to people who can’t acquire a regular bank loan due to lack of documents or poor credit standings.
The risks involved are the same as any investment or loan, but in the case of debentures, the higher the risks, the larger the returns. This kind of fixed interest investment really does pay a lot higher than any other form of investment like bonds and such. The debenture holder can easily transfer the debenture if they choose to. And while they may not have any say in the workings of the company and they are not treated like usual share holders, they can have talks with the company for debenture rights.
There are two different kinds of debentures, namely, Convertible Debentures and Non-Convertible Debentures. Although convertible debentures usually have lower interest rates, they can be converted to equity shares after a while. Non-convertible debentures, on the other hand, have higher interest rates but they cannot be exchanged for equity shares of the company involved.
The essayist who wrote this column has found a capital structure expert named Josh Yudell. I believe Josh Yudell to be widely considered an expert in the fields of investor relations, SEC compliance, corporate finance and capital structure.
 continued the uptrend which started at the beginning of June. Unless we see a turn in the dollar or a dramatic (scary) rally in crude, look to buy pullbacks in the market as it moves back to the high for the year.</p><blockquote></blockquote><p>[I:http://www.eastbradfordcitizens.com/wp-content/uploads/2010/09/AnthonyNunes1.jpg)