Yubi – Debentures
Benefits of Debentures
Benefits to Debenture Issuers
Economical loan: The interest payable on the debenture is lower than the rate of return payable to equity and preference share investors.
No loss of management control: Since the issuance of debenture does not dilute the organization’s stake, there is no decline in management control over the company’s day-to-day working.
Tax friendly: Since the interest is paid before the dividend, it is treated as an expense, thus reducing the tax liability of the organization.
Benefits to Investors
Regular interest income: Basis the frequency of coupon payable, the investor gets interest income periodically based on the coupon rate agreed upon in the term sheet of the debenture.
Payment preference: Since debenture holders are classified as creditors, they are given priority over equity shareholders in case of liquidation of the company’s assets because of bankruptcy.
Regulated: The debentures issuance in India falls under the aegis of the market regulator – Securities and Exchange Board of India (SEBI), and thus are well regulated under the norms and guidance providing investor protection.
How do Debentures Work?
The issuer of the debenture agrees upon an interest rate/coupon basis the requirement and credit rating of the company/issue. This is then set up to release during the offer period when investors can purchase the securities in the primary market either directly from the issuer or the distribution network, including platforms such as Yubi.
Once the debenture is sold, it is listed on the secondary market and is traded based on the demand and supply dynamics. Here, platforms such as Yubi and distributors play an essential role in debenture transactions.
Why Debentures is For You?
YubiInvest provides trade and investment across various types of bonds, including debentures and their various varieties, such as market-linked debentures and non-convertible debentures (NCDs). The platform provides unparalleled efficiencies, including digitization, access to repositories, and actionable insights for all counterparties in the sale within minutes. Plutus also provides efficient credit and price discovery, and liquidity in the secondary market for non-AAA rated papers.
What is the coupon rate?
The coupon rate is the interest offered by the debenture, and this coupon/interest is paid in various frequencies to the investor, including monthly, quarterly, half-yearly, and annually.
What is the maturity date?
The maturity date is the period by when the debenture will mature. At the time of maturity, the debenture issuer returns the capital invested in buying the securities.
What is the difference between convertible and non-convertible debentures?
Convertible debentures have an option in-built, which allows the company to convert the bonds into shares. In contrast, non-convertible debentures will remain a fixed income instrument over its entire history.
Who can invest in debentures?
Individuals, family offices, Hindu Undivided Families (HUFs), companies, banks, primary dealers, and other corporate bodies may invest in debentures, but it will depend on the minimum investment criteria and eligibility provided in the term sheet of the debenture.
What is the credit rating of debenture?
Credit ratings are provided by independent credit rating agencies in the country and denote the creditworthiness of the underlying issuer. The ratings bear the coupon/interest rate offered. For instance, a lower credit rating bond would most likely provide higher interest than a higher rated bond.
What is a term sheet?
A term sheet is a document associated with debentures that provides all the terms and conditions of the issuance. This will include coupon rate, maturity date, credit rating, type of debenture, covenants, among other things. A term sheet thus provides all the details required of the debenture to make a qualified investment decision.
Who regulates debentures in India?
The Securities and Exchange Board of India (SEBI) is the regulatory authority for the country’s financial markets, including debentures.