---
title: "Types of Debentures: Secured, Convertible & How They Are Recorded"
description: "Learn all types of debentures, secured vs unsecured, convertible and non-convertible, advantages for companies, and how debentures are recorded in accounting."
canonical: "https://busy.in/accounting/types-of-debentures-in-accounting/"
author: "Nishant"
published: "2025-05-12T07:57:37.000Z"
category: "Accounting"
---

-   Debentures are debt instruments issued by companies to raise funds without giving ownership rights to investors.
-   Under the Companies Act, 2013, debentures include debenture stock, bonds, and other company instruments that evidence a debt, whether secured by company assets or not.
-   Debentures can be classified as secured, unsecured, convertible, non-convertible, redeemable, zero-coupon, registered, or market-linked, depending on their terms.
-   Debenture holders are creditors of the company. They do not gain voting rights merely by holding debentures.
-   Debenture Redemption Reserve, or DRR, is not mandatory for every company. Its applicability depends on the type of company and the nature of the debenture issue.
-   For accounting purposes, debentures are shown as borrowings. Long-term debentures are shown under long-term borrowings, while current maturities are shown separately under current liabilities or other financial liabilities, as applicable.

# Types of Debentures in Accounting: Meaning, Features, and Examples

## **What Is a Debenture?**

A debenture is a debt instrument issued by a company to borrow money from investors. The company agrees to repay the principal amount according to the terms of issue and usually pays interest or another agreed return.

As per Section 2(30) of the Companies Act, 2013, debenture includes debenture stock, bonds, or any other instrument of a company that evidences a debt, whether it creates a charge on the assets of the company or not.

In simple words, a debenture holder is a lender to the company, not an owner. The holder earns interest or return as per the terms of issue, but does not get ownership or voting rights like an equity shareholder.

### **Key Characteristics of Debentures**

| Feature | Meaning |
| --- | --- |
| Debt instrument | It represents borrowed money, not ownership capital |
| Fixed repayment terms | The company repays the amount as per the issue terms |
| Interest or return | The holder may receive fixed, floating, zero-coupon, or market-linked returns |
| No ownership rights | Debenture holders do not become shareholders |
| Balance sheet treatment | Debentures are recorded as borrowings or financial liabilities |
| Security may vary | Debentures may be secured or unsecured |

## **Benefits of Debentures for Companies**

Debentures help companies raise funds without giving up ownership. Since the company is borrowing money instead of issuing [**equity shares**](https://busy.in/accounting/equity-in-accounting/) , existing shareholders do not lose control or voting power. This makes debentures useful for businesses that need capital but want to avoid ownership dilution.

They can also make financial planning easier. In the case of fixed coupon debentures, the company knows the interest amount in advance, which helps in budgeting and [**cash flow planning**](https://busy.in/accounting/receivables-management-best-practices-to-speed-up-cash-flow/) . Interest paid on debentures used for business purposes may also be deductible, subject to the conditions under the applicable income tax law. The Income-tax Act, 2025 came into force from 1 April 2026, replacing the Income-tax Act, 1961 for the applicable future framework, so the exact tax treatment should be checked under the current law.

Debentures are also flexible as a [**fundraising option**](https://busy.in/accounting/what-is-capital-in-accounting-types-examples-and-importance/) . A company can issue them as secured, unsecured, convertible, non-convertible, redeemable, or zero-coupon instruments depending on its funding requirement and investor profile. For example, secured debentures may appeal to conservative investors, while convertible or market-linked debentures may attract investors looking for higher potential returns.

## **Types of Debentures**

Debentures can be classified on different bases. The main classification is:

| Basis of Classification | Types |
| --- | --- |
| By security | Secured debentures and unsecured debentures |
| By convertibility | Convertible and non-convertible debentures |
| By maturity | Redeemable and perpetual debentures |
| By coupon or return | Fixed coupon, floating coupon, zero-coupon, and market-linked debentures |
| By registration | Registered debentures and bearer debentures |

## **All Types of Debentures Explained**

### **1\. Secured Debentures**

Secured debentures are backed by a charge on the company’s assets. The charge may be fixed on a specific asset, such as land or machinery, or floating on a group of assets, such as [**inventory or receivables**](https://busy.in/accounting/inventory-accounting/) . If the company defaults, secured debenture holders have a claim over the charged assets.

In practice, enforcement is usually carried out by the debenture trustee or through the applicable legal process, not casually by individual holders. For secured debentures, the charge created on company assets must be registered with the Registrar of Companies as required under [Section 77](https://www.indiacode.nic.in/show-data?actid=AC_CEN_22_29_00008_201318_1517807327856&orderno=80) of the Companies Act, 2013.

### **2\. Unsecured Debentures**

Unsecured debentures are not backed by any specific asset of the company. The repayment depends mainly on the company’s creditworthiness and financial strength. Because the risk is higher, unsecured debentures generally carry a higher return than secured debentures. In case of liquidation, unsecured debenture holders do not have a specific claim over charged assets. They rank as [**unsecured creditors**](https://busy.in/accounting/introduction-to-sundry-creditors-and-debtors/) .

### **3\. Registered Debentures**

Registered debentures are issued in the name of the holder. The company records the debenture holder's name, address, and holding details in its register. Transfer of registered debentures requires proper documentation and registration. These are safer than bearer debentures because ownership records are maintained. Modern debenture issuances in India usually follow registered or dematerialised ownership records.

### **4\. Bearer Debentures**

Bearer debentures are debentures where ownership is transferred by physical delivery. The company does not maintain the holder’s name in the same way as registered debentures. In modern Indian practice, bearer debentures are mainly of historical and academic relevance. Current securities issuance and holding systems generally require proper ownership records, and listed securities are usually held in dematerialised form.

### **5\. Convertible Debentures**

Convertible debentures can be converted into equity shares of the issuing company. The conversion may happen on a fixed date or as per the terms of the issue. Under [Section 71 of the Companies Act,](https://www.indiacode.nic.in/show-data?actid=AC_CEN_22_29_00008_201318_1517807327856&orderno=73) 2013, a company may issue debentures with an option to convert them into shares, wholly or partly, at the time of redemption. However, this must be approved by a special resolution. Convertible debentures may carry a lower coupon because the investor also benefits from potential equity conversion. Convertible debentures are usually of two types:

| Type | Meaning |
| --- | --- |
| Fully Convertible Debentures, or FCDs | The full debenture amount is converted into equity shares |
| Partly Convertible Debentures, or PCDs | Only part of the amount is converted into equity, and the remaining part continues as debt or is redeemed |

### **6\. Non-Convertible Debentures**

Non-convertible debentures cannot be converted into equity shares. NCDs may be secured or unsecured, listed or unlisted, redeemable or perpetual, depending on the terms of issue. They are repaid in cash in accordance with the terms of issue. NCDs are common in Indian capital markets, especially among financial institutions and large companies. Listed NCDs are regulated under SEBI’s Issue and Listing of Non-Convertible Securities Regulations, 2021, which were amended up to January 21, 2026.

### **7\. Redeemable Debentures**

Redeemable debentures have a fixed repayment date. The company repays the principal amount either in one lump sum or in installments. This is the most common form of debenture because investors know when the principal will be repaid.

For example, a company issues ₹10,00,000 worth of 10% redeemable debentures for 5 years. The company pays annual interest and repays the principal at the end of the 5th year.

### **8\. Perpetual or Irredeemable Debentures**

Perpetual debentures do not have a fixed maturity date. The company may continue paying interest indefinitely and repay the principal only under specified conditions, such as winding up or a call option. These are rare in normal company accounting and are more relevant in specialised financial instruments. For general accounting students and [**small business**](https://busy.in/accounting/accounting-software-for-beginners/) readers, redeemable debentures are more important.

### **9\. Zero-Coupon Debentures**

Zero-coupon debentures do not pay regular interest. Instead, they are issued at a discount and redeemed at face value. In accounting, the discount or finance cost is recognised over the life of the debenture as per the applicable accounting standard.

For example, a company issues a debenture at ₹800 and redeems it at ₹1,000 after 5 years. The difference of ₹200 represents the return to the investor.

### **10\. Market-Linked Debentures**

Market-linked debentures are debt instruments where returns are linked to the performance of an index, security, or benchmark, such as the Nifty 50. Some MLDs may offer principal protection, while others may carry higher risk depending on the structure.

Investors should read the offer document carefully because the return is not the same as a fixed coupon debenture. In India, listed market-linked debt securities are covered under SEBI’s non-convertible securities framework. The SEBI NCS Regulations, 2021 have been amended up to January 21, 2026.

## **Master Comparison Table**

| Type of Debenture | Security | Convertibility | Maturity | Return Type | Investor Risk |
| --- | --- | --- | --- | --- | --- |
| Secured debenture | Backed by assets | May or may not be convertible | Usually fixed | Usually fixed | Lower |
| Unsecured debenture | No asset backing | May or may not be convertible | Usually fixed | Usually higher | Higher |
| Registered debenture | Holder details recorded | Depends on terms | Depends on terms | Depends on terms | Lower ownership risk |
| Bearer debenture | No registered holder record | Depends on terms | Depends on terms | Depends on terms | High |
| Fully convertible debenture | May be secured or unsecured | Fully convertible | Converts into equity | Usually lower coupon | Low to medium |
| Partly convertible debenture | May be secured or unsecured | Partly convertible | Part debt, part equity | Moderate | Medium |
| Non-convertible debenture | May be secured or unsecured | Not convertible | Redeemable or perpetual | Usually fixed | Medium |
| Redeemable debenture | May be secured or unsecured | Depends on terms | Fixed repayment date | Usually fixed | Low to medium |
| Perpetual debenture | May be secured or unsecured | Depends on terms | No fixed maturity | Usually fixed or floating | Medium to high |
| Zero-coupon debenture | May be secured or unsecured | Usually non-convertible | Fixed | Discount-based return | Varies |
| Market-linked debenture | May be secured or unsecured | Usually non-convertible | Fixed | Linked to market performance | Medium to high |

## **Secured vs Unsecured Debentures**

| Feature | Secured Debentures | Unsecured Debentures |
| --- | --- | --- |
| Collateral | Backed by company assets | No specific asset backing |
| Charge on assets | Yes | No |
| Interest rate | Usually lower | Usually higher |
| Risk for investor | Lower | Higher |
| Recovery on default | Claim over charged assets through legal process | General creditor claim |
| Suitable for | Conservative investors | Risk-tolerant investors |

## **Convertible vs Non-Convertible Debentures**

| Feature | Secured Debentures | Unsecured Debentures |
| --- | --- | --- |
| Collateral | Backed by company assets | No specific asset backing |
| Charge on assets | Yes | No |
| Interest rate | Usually lower | Usually higher |
| Risk for investor | Lower | Higher |
| Recovery on default | Claim over charged assets through legal process | General creditor claim |
| Suitable for | Conservative investors | Risk-tolerant investors |

## **How Debentures Are Recorded in Accounting**

The accounting treatment depends on how the debentures are issued, whether they are issued at par, at discount, at premium, or with redemption premium. Below are basic [**accounting entries**](https://busy.in/accounting/what-is-bookkeeping-benefits-principles-and-the-process/) for common cases.

### **Journal Entry 1 - Issue of Debentures at Par**

A company issues ₹10,00,000 worth of 10% debentures at par.

| Particulars | Dr (₹) | Cr (₹) |
| --- | --- | --- |
| Bank A/c Dr | 10,00,000 |  |
| To 10% Debentures A/c |  | 10,00,000 |

Narration: Being 10% debentures issued at par.

### **Journal Entry 2 - Issue of Debentures at Discount**

A company issues ₹10,00,000 worth of debentures at a 10% discount. The company receives ₹9,00,000.

| Particulars | Dr (₹) | Cr (₹) |
| --- | --- | --- |
| Bank A/c Dr | 9,00,000 |  |
| Discount on Issue of Debentures A/c Dr | 1,00,000 |  |
| To Debentures A/c |  | 10,00,000 |

Narration: Being debentures issued at 10% discount.

For basic accounting, the discount is written off over the life of the debentures. For companies following Ind AS or other applicable accounting standards, discount, premium, and transaction costs may need to be treated through the effective interest rate method. The applicable [**accounting standard**](https://busy.in/accounting/indian-accounting-standards-applicability-list/) should be checked before finalising [**financial statements**](https://busy.in/accounting/financial-accounting/) .

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### **Journal Entry 3 - Issue of Debentures at Premium**

A company issues ₹10,00,000 worth of debentures at a 5% premium. The company receives ₹10,50,000.

| Particulars | Dr (₹) | Cr (₹) |
| --- | --- | --- |
| Bank A/c Dr | 10,50,000 |  |
| To Debentures A/c |  | 10,00,000 |
| To Securities Premium A/c |  | 50,000 |

Narration: Being debentures issued at 5% premium.

### **Journal Entry 4 - Interest Accrued on Debentures**

A company has ₹10,00,000 worth of 10% debentures. Annual interest is ₹1,00,000.

| Particulars | Dr (₹) | Cr (₹) |
| --- | --- | --- |
| Debenture Interest A/c Dr | 1,00,000 |  |
| To Interest Payable A/c |  | 1,00,000 |

Narration: Being interest accrued on debentures.

### **Journal Entry 5 - Interest Paid on Debentures**

| Particulars | Dr (₹) | Cr (₹) |
| --- | --- | --- |
| Interest Payable A/c Dr | 1,00,000 |  |
| To Bank A/c |  | 1,00,000 |

Narration: Being debenture interest paid.

If TDS applies on debenture interest, the company should record the [**TDS payable**](https://busy.in/gst/tds-return-and-payment-important-due-dates-you-should-know/) separately instead of crediting the full amount to Bank A/c. Find an example of an entry where TDS is deducted below:

| Particulars | Dr (₹) | Cr (₹) |
| --- | --- | --- |
| Interest Payable A/c Dr | 1,00,000 |  |
| To Bank A/c |  | 90,000 |
| To TDS Payable A/c |  | 10,000 |

Narration: Being debenture interest paid after deduction of TDS.

### **Journal Entry 6 - Redemption of Debentures at Par**

| Particulars | Dr (₹) | Cr (₹) |
| --- | --- | --- |
| Debentures A/c Dr | 10,00,000 |  |
| To Bank A/c |  | 10,00,000 |

Narration: Being debentures redeemed at par.

### **Journal Entry 7 - Redemption of Debentures at Premium**

Assume ₹10,00,000 debentures are redeemed at a 5% premium. Then the entry will be

| Particulars | Dr (₹) | Cr (₹) |
| --- | --- | --- |
| Debentures A/c Dr | 10,00,000 |  |
| Premium on Redemption of Debentures A/c Dr | 50,000 |  |
| To Debenture Holders A/c |  | 10,50,000 |

Narration: Being amount due to debenture holders on redemption at premium.

Whereas at the time of payment the entry will be:

| Particulars | Dr (₹) | Cr (₹) |
| --- | --- | --- |
| Debenture Holders A/c Dr | 10,50,000 |  |
| To Bank A/c |  | 10,50,000 |

Narration: Being payment made to debenture holders.

## **Debenture Redemption Reserve, or DRR**

Debenture Redemption Reserve is a reserve created out of company profits for the redemption of debentures. [Section 71(4) of the Companies Act, 2013](https://www.indiacode.nic.in/show-data?actid=AC_CEN_22_29_00008_201318_1517807327856&orderno=73) provides for the creation of DRR out of [**profits available for dividend**](https://busy.in/accounting/profit-and-loss-appropriation-account/) , and the amount credited to this account cannot be used except for redemption of debentures. However, DRR is not mandatory for every company. Its applicability depends on the type of company and the nature of the debenture issue.

DRR requirements apply based on the Companies Act, 2013 and the Companies (Share Capital and Debentures) Rules, 2014. Certain categories, such as banking companies, All India Financial Institutions, many listed companies, NBFCs, and housing finance companies, may be exempt depending on the issue structure. Other unlisted companies may need to create DRR as prescribed under the rules.

**Note:** DRR is an accounting reserve created from profits. It does not automatically mean the company has set aside cash separately. Where applicable, companies may also need to deposit or invest a specified amount for debentures maturing in the relevant year. This is separate from merely creating a DRR in the books.

## **Journal Entry - Creating DRR**

For example, a company creates DRR of ₹2,50,000. Then the journal entry in a [**double-entry system**](https://busy.in/accounting/double-entry-bookkeeping-system-definition-rules-and-examples/) would be-

| Particulars | Dr (₹) | Cr (₹) |
| --- | --- | --- |
| Statement of Profit and Loss A/c Dr | 2,50,000 |  |
| To Debenture Redemption Reserve A/c |  | 2,50,000 |

Narration: Being DRR created out of profits.

## **Journal Entry - Transfer of DRR After Redemption**

Once debentures are redeemed, the DRR balance may be transferred to General Reserve.

| Particulars | Dr (₹) | Cr (₹) |
| --- | --- | --- |
| Debenture Redemption Reserve A/c Dr | 2,50,000 |  |
| To General Reserve A/c |  | 2,50,000 |

Narration: Being DRR transferred to [**General Reserve**](https://busy.in/accounting/types-of-reserves-in-accounting-revenue-capital-and-secret-reserves-explained/) after redemption of debentures.

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## **Debenture Trust Deed and Debenture Trustee**

A debenture trustee protects the interests of debenture holders. Under [Section 71](https://www.indiacode.nic.in/show-data?actid=AC_CEN_22_29_00008_201318_1517807327856&orderno=73) of the Companies Act, 2013, a company cannot issue a prospectus or make an offer or invitation to the public or to more than 500 members for subscription of debentures unless one or more debenture trustees are appointed before the issue or offer.

For secured debentures, the company must appoint a debenture trustee before issuing the prospectus or letter of offer and execute the debenture trust deed within the prescribed time. Rule 18 of the Companies (Share Capital and Debentures) Rules refers to execution of the debenture trust deed to protect debenture holders. A debenture trust deed usually includes:

| Component | Meaning |
| --- | --- |
| Rights of debenture holders | Defines repayment, interest, and protection rights |
| Security details | Specifies the assets charged in favour of holders |
| Redemption terms | Mentions repayment date, premium, or instalments |
| Default procedure | Explains what happens if the company fails to pay |
| Trustee powers | Defines trustee’s role in protecting holders |

## **Debentures vs Bonds vs Shares**

| Feature | Debentures | Bonds | Equity Shares |
| --- | --- | --- | --- |
| Nature | Debt instrument | Debt instrument | Ownership instrument |
| Holder status | Creditor | Creditor | Owner |
| Return | Interest or agreed return | Interest or agreed return | Dividend |
| Voting rights | No | No | Yes |
| Security | May be secured or unsecured | May be secured or unsecured | Not applicable |
| Repayment | As per issue terms | As per issue terms | No fixed repayment |
| Risk | Medium | Low to medium, depending on issuer | High |
| Priority in liquidation | Before equity, depending on security | Before equity, depending on security | Last |
| Tax treatment for company | Interest may be deductible | Interest may be deductible | Dividend is paid from profits |

**Important Note:** In India, the terms “bond” and “debenture” are often used interchangeably in business and market practice. The Companies Act definition of debenture itself includes bonds. Therefore, it is not accurate to say that debentures are always unsecured and bonds are always secured. The real difference depends on the terms of the instrument, such as:

-   Whether it is secured or unsecured
-   Whether it is convertible or non-convertible
-   Whether it is listed or unlisted
-   Whether it is redeemable or perpetual
-   Whether it carries fixed, floating, zero-coupon, or market-linked returns

## **Balance Sheet Presentation of Debentures**

Debentures are shown as borrowings in the [**balance sheet**](https://busy.in/accounting/balance-sheet-basics-definition-format-and-key-elements/) . As per Schedule III of the Companies Act, 2013, long-term borrowings include bonds and debentures. Borrowings should also be classified as secured or unsecured, and the nature of security should be disclosed separately.

### **Balance Sheet Presentation Example**

| Balance Sheet Head | Sub-Head | Particulars | Amount |
| --- | --- | --- | --- |
| Non-Current Liabilities | Borrowings | 10% Secured Debentures, redeemable in 2029 | ₹10,00,000 |

If any portion of long-term debentures is due within 12 months, that portion should be shown separately as the current maturity of long-term debt. Schedule III also separately identifies current maturities of long-term debt and unpaid matured debentures with interest accrued thereon.

### **Simple Presentation Format**

| Balance Sheet Head | Treatment |
| --- | --- |
| Long-term debentures | Non-current borrowings |
| Debentures payable within 12 months | Current maturities of long-term debt |
| Interest accrued but not due | Current liability or other financial liability, as applicable |
| Matured debentures not yet paid | Unpaid matured debentures |
| Secured debentures | Security details should be disclosed |
| Unsecured debentures | Classified separately as unsecured borrowings |

## **Practical Example of Debenture Accounting**

ABC Ltd. issues ₹10,00,000 worth of 10% secured redeemable debentures at par on April 1, 2026. The debentures are redeemable after 5 years.

### **At the Time of Issue**

| Particulars | Dr (₹) | Cr (₹) |
| --- | --- | --- |
| Bank A/c Dr | 10,00,000 |  |
| To 10% Secured Debentures A/c |  | 10,00,000 |

### **At the Time of Annual Interest Accrual**

| Particulars | Dr (₹) | Cr (₹) |
| --- | --- | --- |
| Debenture Interest A/c Dr | 1,00,000 |  |
| To Interest Payable A/c |  | 1,00,000 |

### **At the Time of Interest Payment**

| Particulars | Dr (₹) | Cr (₹) |
| --- | --- | --- |
| Interest Payable A/c Dr | 1,00,000 |  |
| To Bank A/c |  | 1,00,000 |

### **At the Time of Redemption**

| Particulars | Dr (₹) | Cr (₹) |
| --- | --- | --- |
| 10% Secured Debentures A/c Dr | 10,00,000 |  |
| To Bank A/c |  | 10,00,000 |

Tracking debenture balances, interest accruals, and redemption schedules manually increases the risk of misclassification in the balance sheet. A dedicated [**financial accounting software**](https://busy.in/accounting-software/financial-accounting/) helps businesses maintain separate ledgers for debenture liabilities, record interest entries on time, and generate accurate final accounts without missing year-end obligations.

## **Common Mistakes to Avoid**

| Mistake | Correct Position |
| --- | --- |
| Treating debenture holders as owners | Debenture holders are creditors, not owners |
| Saying all debentures are secured | Debentures may be secured or unsecured |
| Saying all debentures carry fixed interest | Returns may be fixed, floating, zero-coupon, or market-linked |
| Saying DRR applies to every company | DRR applicability depends on company type and issue structure |
| Showing all debentures as non-current liabilities | Debentures due within 12 months should be shown separately as current maturities |
| Saying bonds are always secured and debentures are always unsecured | In India, the terms are often used interchangeably; exact terms depend on issue conditions |
| Ignoring accrued interest | Interest should be accrued even if not yet paid |
| Ignoring TDS | TDS should be recorded separately where applicable |

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## **Conclusion**

Debentures are an important source of [**long-term finance**](https://busy.in/accounting/capital-expenditure-investing-in-long-term-growth/) for companies. They help businesses raise funds without diluting ownership, while giving investors a fixed, variable, or structured return.

From an accounting point of view, debentures must be recorded as borrowings, interest must be [**accrued properly**](https://busy.in/accounting/understanding-accrual-concept-in-accounting-meaning-importance-and-examples/) , and repayment obligations must be classified correctly in the balance sheet. From a compliance point of view, companies must carefully check the rules related to security creation, charge registration, debenture trustees, DRR, and SEBI regulations, where applicable.

For Indian businesses, debentures should not be treated as a simple loan entry only. The accounting, tax, company law, and disclosure requirements should all be reviewed before issuing or recording debentures. For businesses using BUSY [**accounting software**](https://busy.in/accounting-software/) , debenture liabilities, interest expense, TDS entries, and year-end balances can be tracked through proper ledgers, helping maintain accurate books and balance sheet reporting.

## About the author

**Nishant**

I am a Chartered Accountant with more than five years of experience in the accounting field. My areas of expertise include GST, income tax, and audits. I am passionate about sharing knowledge through blogs and articles, as I believe that learning is a lifelong journey. My goal is to provide valuable insights and simplify financial matters for individuals and business owners alike.

## Frequently asked questions

### What is a debenture in accounting?

A debenture is a debt instrument issued by a company to borrow money. In accounting, it is recorded as a borrowing or financial liability. The company records interest expense over time and repays the principal as per the terms of issue.

### What is the difference between debentures and shares?

Debentures represent borrowed money, while shares represent ownership capital. Debenture holders are creditors and receive interest. Shareholders are owners and may receive dividends if the company earns profits and declares them.

### Are debentures secured or unsecured?

Debentures may be issued with or without security. If a debenture is secured, the company gives debenture holders a charge over specific assets as protection against default. If it is unsecured, the holder does not have a claim over any particular asset and depends mainly on the company’s repayment ability.

### Are bearer debentures legal in India?

Bearer debentures are mainly of historical and academic relevance in modern Indian practice. Current securities systems generally require proper ownership records or dematerialised holdings. It is safer not to state broadly that bearer debentures are “illegal” unless a specific legal source is cited for that exact claim.

### What is the difference between debentures and bonds?

In India, the terms debenture and bond are often used interchangeably. The Companies Act definition of debenture includes bonds. The practical difference depends on the instrument terms, such as security, maturity, issuer, listing status, and repayment conditions.

### What is DRR?

DRR stands for Debenture Redemption Reserve. It is a reserve created out of profits for the redemption of debentures. However, DRR is not mandatory for every company. Its applicability depends on the type of company and the nature of the debenture issue.

### Is interest on debentures tax-deductible?

Interest on borrowed capital used for business purposes is generally deductible, subject to conditions under the applicable income tax law. For content updated in 2026, references should consider the Income-tax Act, 2025, which came into force from April 1, 2026.

### Can a private limited company issue debentures?

Yes, a private limited company can issue debentures, subject to the Companies Act, 2013, private placement rules, approvals, filings, and other applicable conditions. If the debentures are secured, charge creation and registration requirements must also be followed.

### What is the accounting entry for issue of debentures at discount?

When debentures are issued at a discount, the company receives less money than the face value of the debentures but still records the full liability. The discount represents a finance cost or deferred expense that is accounted for as per the applicable accounting treatment.

### What happens to debentures during liquidation?

Secured debenture holders have a claim over the charged assets, subject to applicable law and the terms of security. Unsecured debenture holders rank as unsecured creditors. Both are paid before equity shareholders, but their exact priority depends on the type of debt, security, and insolvency or liquidation framework.

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