Group 4

Economic Policy/Guidelines

SEBI Guidelines for Debentures in India

 Context
Name Topic
Nikhat Introduction to Debentures
Types of Debentures

Mitesh Merits & Demerits

Monisha Difference between Debenture &

Share

Payal SEBI Guidelines

Monisha Conclusion
 Introduction to Debentures
• A debenture is defined as a certificate of agreement of loans
which is given under the company's stamp and carries an
undertaking that the debenture holder will get a fixed return
(fixed on the basis of interest rates) and the principal
amount whenever the debenture matures.
 Characteristics
• Debenture Holder are the creditors of the company.
• They are fixed interest debt instruments with varying period of
maturity.
• When offered for subscription a debenture redemption reserve
has to be maintained.
• If listed on the stock exchanges, they should be rated prior to the
listing by any of the credit rating agencies designated by SEBI.
Types of Debentures
A. SECURITY :
• Secured & unsecured
B. CONVERTIBILITY:
 Fully Convertible & Non convertible
C. TENURE :
 Redeemable & Non-Redeemable
D. RECORDS:
 Registered & Bearer
 Merits
No dilution of control
Long term finance
Tax Benefit
Investor’s safety
 Demerits
Fixed obligation
Charge on assets
No voting Rights
 Differentiation
Debentures Shares
Creditors of the company Owners of the company
Have no voting rights and no consequent Have voting rights and consequent
control of the company control of the company

Interest is paid at a predetermined fixed Dividend on equity is paid at variable

rate rate depending on profits

On basis of Security, tenure, Equity shares and preference shares

Convertibility, Records.

Can be converted into shares Can not be converted into debentures

On liquidation they are paid first On liquidation paid after paying

debentures and creditors
 SEBI guidelines for debentures
• Issue of FCDs having a conversion period more than 36 months
will not be permissible, unless conversion is made optional with
“put” and “call” option.
• Compulsory credit rating will be required if conversion is made
for FCDs after 18 months.
• Premium amount on conversion, the conversion period, in stages,
if any, shall be pre-determined and stated in the prospectus.
• The interest rate for above debentures will be freely determinable
by the issuer.
• Issue of debenture with maturity of 18 months or less are exempt
from the requirement of appointing Debenture Trustees or
creating a Debenture Redemption Reserve (DRR).
 SEBI guidelines for debentures Contd.
• In other cases, the names of the debenture trustees must be stated
in the prospectus and DRR will be created in accordance with
guidelines laid down by SEBI.
• The trust deed shall be executed within six months of the closure
of the issue.
• Any conversion in part or whole of the debenture will be
optional at the hands of the debenture holder, if the conversion
takes place at or after 18 months from the date of allotment, but
before 36 months.
• Premium amount at the time of conversion for the PCD,
redemption amount, period of maturity, yield on redemption for
the PCDs/NCDs shall be indicated in the prospectus.
 Conclusion
SEBI has laid down guidelines for debentures issued by
the company in order to trade in the debt market.
This helps investors to study the true and fair view to
invest in the debt market.
Webliography
www.sebi.org
www.wikipedia.org
www.investopedia.com