Hello everyone welcoming you back to the Shine Gyan, where knowledge can begin without End. Today I’m writing this article to share the knowledge about Debentures and is it worth investing in Debenture? Debentures are the instrument of the Financial Market. It’s all about Share Market. If you haven’t read my previous article about Share Market. Would you please Check that First? Without the knowledge of Share Market, you can’t understand about Debentures. Side by Side, you can check out Articles about Mutual Funds. It’s a turn of Debentures. When you know about these things, you can diversify your portfolio. Investing in different sectors, you’ll decrease the risk in the Share Market.
What is Debenture?
The term of Debenture in Nepali is “Rin patra”. When a company wants to collect money from the market, there are two methods to collect the money from the Market. “Equity Financing” & “Debt Financing”. On Equity Financing A company need to issue IPO or FPO. On Dept Financing A company need to issue Debenture. Either a company need to sell the shares or take a loan to collect the money. The debenture is the Loan Instrument or Debt instrument. Any company have to issue IPO’s. With IPO’s company collected the money. In terms of raising the business of maintaining the equity. Any company have to issue a Debenture with collecting the money. A company cannot issue an IPO more than one time. Simple, we can say, Company taking the loan from the Peoples is called Debentures. While taking the loan, everyone wants to know how much interest the will company gives? While collecting the money as a method of Debenture Company need to issue a fixed interest rate. While collecting the money from Debentures Company need to say about interest and time period and when the interest provided. Most of the company gives interest annually. At the end of the time period, the investor will get the principal money and interest rate. Most of the debentures are secured side by side; most of them are unsecured. At the end of the time period, the debenture may be converted to Shares. There are various types of Debentures.
Types of Debenture
Secured and Unsecured Debenture
When a company pledged their property as collateral and issued the Debenture is known as Secured Debenture. When a Company doesn’t pledge their property as collateral and is issued, the debenture is known as an unsecured debenture, on Secured debenture, when a company get a loss. A company need to sell their property and pay the principal and interest to their investor. So Secured Debenture is low Risk. Commercial Bank always issued unsecured Debenture. It’s a policy issued by Nepal Rastra Bank.
Reedemnable & Non-Reedemnable
On Reedemnable Debenture, an investor knew about when their principle and interest would be returning where Non-redeemable Debenture, an investor, will be known.
Convertiable and Non-Convertible
On a Mature period, if a debenture can be converted to share is known as a convertible debenture, and if a debenture cannot convert to share is known as a non-convertible debenture.
Why Debenture is issued?
- For Capital Raise
- For Long Term period
Basic Difference between Debentures & Share
- Shareholders are a owners of company where Debenture holders are Creditors of company.
- Share Holders can participate in Company’s AGM but Debenture Holder cannot participate in Company’s AGM. Share Holder have voting tight and can choose Board of Director but Debenture Holders cannot.
- When you buy the Debenture you’re giving the Loan and when you buy the share you’re buying the equity.
- In context of Nepal, The minimum Price of Share is NRs. 100 per unit side by side you have to apply minimum 10 Units and the minimum Price of Debenture is NRs. 1000 per unit side by side you to apply minimum 25 Units in Primary Market (IPO’s).
- In term of Return, on Shares you’ll get Bonus Share, Cash Dividend or Right Share and on Debenture, you’ll get only interest as a Return. If the debenture is ridable you’ll get share otherwise you won’t.
- On Share, Risk is high whereas Debenture, Risk is Low because he value of Share Fluctuate daily but on Debentures value won’t fluctuate. Whether your company is in loss, on debenture you’ll get the interest at a fixed time. Suppose if the company is in loss, a company should pay the return to the debentures holder than only to the shareholders.
Suppose you want the money from a debenture in the mid-period of maturity time. You can cash out by taking the loan as an asset. You’ll get the 90% of cash as compared to the Debentures amount. You guys know or not. Debentures are listed on the Secondary market. You can sell or buy through a Stockbroker on the secondary market. The price of Debentures fluctuates NRs. 50 to NRs. 100. So you can’t earn a huge amount of money or loss a huge amount of money if you guys don’t know the Share market and don’t have enough time to invest in the share market. You can invest your wealth in Debentures.
On the date of July 16, 2021. Two Commercial banks have issued Debenture. Laxmi Bank Limited & Machhapuchchhre Bank Limited. If you want to diversify your portfolio, you can invest in it through Mero share or Banks. Laxmi Bank has Issued 8.5% for 10 Years. “8.5% Laxmi Bank Debenture 2088”. Machhapuchchhre Bank Limited has issued 8.50% for 9 Years. “8.50% Machhapuchchhre Debenture 2087”. I will show how you can invest in Debentures. First, you have to create a Mero Share Account and Demat Account. You must have minimum NRs. 25,000 on your Saving Bank Account.
How to Apply?
- Open Mero Share Website. Click Here
- Login with you Username, Password and Respective Depository Participants Number. You’ll get it from Banks or Capital.
- Click on My Asba on Left Sidebar.
- Click on Apply for Issue.
- Select you debentures Company. You can recognize whether it is debenture of General IPO. Everything written as shown in the Picture.
- Click on Apply.
- Select you Bank, Enter Units/kitta (Minimum:25 Kitta/Units), Enter you CRN Number. Click on Proceed.
- Now enter the 4-Digit Transaction PIN Code which you generated while Registering Mero Share & Demat Account Account.
- Click Apply.
Is it worth investing in Debenture?
Suppose you’re a short term investor or Trader. My suggestion is don’t invest in Debenture. Suppose you’re a long-term investor and don’t have enough knowledge and time to invest in the share market, diversify your portfolio, and invest in the debenture. The debenture is a medium of getting money annually without doing any task.