What are debentures ? Discuss their merits and limitations

Debentures are an important instrument for raising long-term debt capital. A debenture can be defined as an acknowledgement that the company has borrowed a certain amount of money which it promises to repay at a future date. Debenture holders are the creditors of the company and are paid fixed rate of interest at specified interval.Merits:

  1. Investors who want fixed income at low risk prefer debentures.
  2. Debenture holders do not carry voting rights. Therefore, they do not affect the control of equity shareholders on management.
  3. The issue of debenture reduces the borrowing capacity of the business.
  4. Being fixed charge funds, they are a burden on the earnings of the company.