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A debenture is a debt instrument issued by an organized institution under the condition that the principal and interest will be paid at a specified rate and within a specified time. Its face value is generally NPR 1,000.
Debenture holders receive interest on their invested amount at a predetermined rate, either annually or semi-annually. A debt instrument issued by the central or local government under the condition of paying principal and interest at a specified rate and time is called a bond. Bondholders or debenture holders do not have the right to participate in or vote at a company’s annual general meeting.
Debt instruments are preferred by investors who wish to take lower risk. Debentures can be classified as secured or unsecured, redeemable or irredeemable, convertible or non-convertible.