Bond
Bond is another tool of investment
for the investors. You have known earlier that bond is a document or
agreement through which a company gathers loan capital from the investors. In
our country most of the companies gather loan capital through taking loans from
banks or other financing organizations. As a result, bond is not yet so much
familiar in our country.
Bond has some particular own features and characters from
the perspectives of investors. Those are discussed below:
1. Mortgage: A
company usually keeps its property or documents as mortgage against bonds. As a
result, if the company is not able to meet the claims of the investors, they
can realize their money by selling these properties.
2. Date of Maturity:
A bond issued by a company has some certain date of maturity. On that date of
maturity the investor gets back the written value as mentioned in the bond.
3. Creditor: Bond
owners are considered as the creditors of a company. So they have no voting
right.
4. Transform-ability: Many
a time, a company may sell transferable bonds to the investors. In such cases,
if the bond owners wish, they can transform the bonds at their possession to
certain number of general shares as mentioned in the conditions of the
debenture.
Advantages
1. Rate of Interest: As
the rate of interest is fixed, the income of the investors in bonds is fixed.
As a result, they have less uncertainty of income. However, sometimes the rate
of interest may also change.
2. Less Risk: As
immovable or other properties are kept as mortgage against bonds, the risk of
investors in bonds decreases.
3. Rights on Profit
and Properties: Bond owners are given interest on their investment at the
very first from the income of the company. On the other hand, at the time of
liquidation or closure of the company, claims of the bond owners are first met
before meeting the claims of others. That is, the claims of bond owners get
priority over the claims of the general and priority shareholders.
Disadvantages
1. Less Income Rate:
As there is less risk in bonds compared to general shares and priority shares,
the rate of income of the bond owners is less.
2. Control: As
like that of priority shares the bond owners do not have voting right, they
cannot involve themselves in the control of the company.
Debenture
Debenture is a bond without mortgage. So, most of the
characteristics of bonds prevail in debentures. Like bond and priority shares,
debentures are also not found so much in our country.
Compared to bond, its special feature is there is no mortgage
against debenture. As there is no mortgage against debentures, investors do not
buy debentures of all companies. Investors usually invest their money in
debentures issued by big renowned companies.
Advantages and Disadvantages of Debenture
As a tool of investment some advantages and disadvantages of
debentures are as follow:
Advantages
1. Regular Income:
Like that of bonds, an investor gets a regular income at some fixed rate from
debentures.
2. Fixed Term:
Debenture is popular to many investors for its fixed term.
Disadvantages
1. No Security or
Mortgage: Since there is no mortgage against a debenture, it is risky.
2. Control: Like
that of bonds, an owner of debenture does not have any voting right. Hence,
owners of debenture have no control in the operation of the company.
3. Rights in Profit
and Property: An owner of debenture enjoys an equal status of general
creditors. So, before paying interest to the owners of debenture, interest of
the bond owners is paid from the income of the company. In this way, at the
time of liquidation or closure of the company, claims of the debenture owners
are met after meeting the claims of the bond owners.
End
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