Question

Explain the types of debentures from the security point of view.

Hint:

Secured debentures are safer investments compared to unsecured debentures, as they are backed by collateral.

Answer 1

Step 1: Definition of debentures.
Debentures are financial instruments issued by companies to raise capital. They represent a debt owed by the company to the debenture holders and typically pay a fixed rate of interest.
Step 2: Types of debentures from the security point of view.
1. **Secured Debentures:** These debentures are backed by the company’s assets as collateral. In case the company defaults, the debenture holders can claim the assets to recover their investment.
2. **Unsecured Debentures:** These debentures are not backed by any collateral. They are riskier than secured debentures because debenture holders have no claim on the company's assets in case of default.
Step 3: Conclusion.
Secured debentures provide more security to investors due to the backing of company assets, whereas unsecured debentures carry more risk. Final Answer: \[ \boxed{\text{Secured debentures are backed by assets, while unsecured debentures are not.}} \]