Debenture vs. Indenture: What's the Difference?
Edited by Aimie Carlson || By Janet White || Updated on October 18, 2023
"Debenture is a long-term security yielding fixed interest, issued by a company. Indenture is a written agreement, particularly one regarding the repayment of debt."
Key Differences
A debenture is a type of debt instrument that is not secured by physical assets or collateral; it's backed only by the general creditworthiness and reputation of the issuing entity. Conversely, an indenture is a legal and binding contract or agreement that outlines the specific terms of a bond issue, including its maturity date, the rate of interest paid to the bondholder, and other detailed terms and conditions.
Debentures are commonly used by large companies to secure capital, offering a fixed rate of interest to investors and a promise of repayment upon the debenture's maturity. Indentures, however, serve as the detailed recorded promises between the borrower (issuer) and the lender (bondholder), ensuring both parties adhere to the agreed-upon terms, such as the repayment schedule, interest rates, and the duties and responsibilities of each party.
While a debenture is an actual financial instrument, an indenture is a legal document. The debenture serves as evidence of debt and an obligation to repay it, often with interest. In contrast, the indenture is the document that establishes the terms under which the debt will be repaid and how the interest will be paid, acting as a protective measure for both the issuer and the bondholder.
Debentures are known for being freely transferable between investors, and they can be sold on the open market. They represent a more flexible way of obtaining funding without giving up ownership, unlike equity financing. Indentures do not change hands, but they govern the transferability of the bond they detail, setting the legal framework within which transfers or sales can occur, if at all.
The term "debenture" often implies a longer-term debt instrument, sometimes without collateral, relying on the issuer's ability to generate enough future income to repay the debt. "Indenture," on the other hand, is broader in scope and doesn't imply any specific timeframe. Instead, it's the governing document that can apply to any debt agreement, regardless of the duration.
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Comparison Chart
Nature
Financial instrument
Legal document
Purpose
Raise capital
Outline debt terms
Transferability
Freely transferable
Governs transferability
Security
Often unsecured
Defines security
Term Implication
Usually long-term
Any term
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Debenture and Indenture Definitions
Debenture
Debenture: An unsecured loan backed only by the borrower's integrity.
Investors were hesitant to buy the debentures of the financially unstable company.
Indenture
A deed or agreement executed in two or more copies.
The parties signed the indenture in triplicate.
Debenture
Debenture: A bond that doesn't require collateral.
The start-up raised capital by issuing debentures.
Indenture
A legal agreement between a bond issuer and a bondholder.
The indenture clearly specified the repayment terms.
Debenture
Debenture: A debt instrument offering fixed interest payments.
He invested his savings in high-yielding debentures.
Indenture
A written contract concerning the terms of a debt or loan.
Before issuing the bond, they drafted a detailed indenture.
Debenture
Debenture: A long-term security loan taken out by a company.
The company issued a debenture to fund its new project.
Indenture
A contract binding one party into the service of another for a specified term.
The apprenticeship indenture was for a period of four years.
Debenture
A certificate or voucher acknowledging a debt.
Indenture
A document outlining the formal terms of an agreement.
Every clause in the indenture was carefully reviewed by lawyers.
Debenture
Debenture: A certificate or voucher acknowledging a debt.
The debenture certificates were filed safely in the vault.
Indenture
Often indentures A contract binding one party into the service of another for a specified term.
Debenture
An unsecured bond issued by a civil or governmental corporation or agency and backed only by the credit standing of the issuer.
Indenture
A deed executed by more than one party.
Debenture
A customhouse certificate providing for the payment of a drawback.
Indenture
An instrument or agreement specifying the terms of a bond or trust.
Debenture
A certificate that certifies an amount of money owed to someone; a certificate of indebtedness.
Indenture
A document separated into portions so as to create indentations that allow the holders of the separate portions to match up in order to confirm authenticity.
Debenture
(obsolete) A certificate of a loan made to the government; a government bond.
Indenture
To bind into the service of another by indenture.
Debenture
A type of debt instrument secured only by the general credit or promise to pay of the issuer, not involving any physical assets or collateral, now commonly issued by large, well established corporations with adequate credit ratings.
Indenture
(legal) A contract which binds a person to work for another, under specified conditions, for a specified time (often as an apprentice).
Debenture
A document granting lenders a charge over a borrower’s physical assets, giving them a means to collect a debt, as part of a secured loan.
Indenture
A document, written as duplicates separated by indentations, specifying such a contract.
Debenture
A writing acknowledging a debt; a writing or certificate signed by a public officer, as evidence of a debt due to some person; the sum thus due.
Indenture
An indentation; a recess.
Debenture
A customhouse certificate entitling an exporter of imported goods to a drawback of duties paid on their importation.
Indenture
(legal) To bind a person under such a contract.
Debenture
Any of various instruments issued, esp. by corporations, as evidences of debt. Such instruments (often called debenture bonds) are generally, through not necessarily, under seal, and are usually secured by a mortgage or other charge upon property; they may be registered or unregistered. A debenture secured by a mortgage on specific property is called a mortgage debenture; one secured by a floating charge (which see), a floating debenture; one not secured by any charge a naked debenture. In general the term debenture in British usage designates any security issued by companies other than their shares, including, therefore, what are in the United States commonly called bonds. When used in the United States debenture generally designates an instrument secured by a floating charge junior to other charges secured by fixed mortgages, or, specif., one of a series of securities secured by a group of securities held in trust for the benefit of the debenture holders.
Indenture
To indent; to make hollows, notches, or wrinkles in; to furrow.
Though age may creep on, and indenture the brow.
Debenture
A bond that is backed by the credit of the issuer but not by any specific collateral
Indenture
The act of indenting, or state of being indented.
Debenture
A certificate or voucher acknowledging a debt
Indenture
A mutual agreement in writing between two or more parties, whereof each party has usually a counterpart or duplicate, sometimes with the edges indented for purpose of identification; sometimes in the pl., a short form for indentures of apprenticeship, the contract by which a youth is bound apprentice to a master.
The law is the best expositor of the gospel; they are like a pair of indentures: they answer in every part.
Indenture
A contract by which anyone is bound to service.
Indenture
To indent; to make hollows, notches, or wrinkles in; to furrow.
Though age may creep on, and indenture the brow.
Indenture
To bind by indentures or written contract; as, to indenture an apprentice.
Indenture
To run or wind in and out; to be cut or notched; to indent.
Indenture
A concave cut into a surface or edge (as in a coastline)
Indenture
Formal agreement between the issuer of bonds and the bondholders as to terms of the debt
Indenture
A contract binding one party into the service of another for a specified term
Indenture
The space left between the margin and the start of an indented line
Indenture
Bind by or as if by indentures, as of an apprentice or servant;
An indentured servant
FAQs
Can debentures be converted into shares?
Yes, if they are convertible debentures.
What's the main purpose of an indenture?
To legally define the terms and conditions of a bond or loan.
Are debentures always unsecured?
Often, but there can be secured debentures backed by assets.
What's the risk involved in investing in debentures?
Credit risk, as repayment depends on the issuer's financial health.
Can an indenture be amended?
Yes, with consent from both parties involved.
Is collateral necessary for debentures?
Not for unsecured debentures; secured ones require collateral.
What specifics does an indenture cover?
Repayment terms, interest rate, covenants, and default conditions.
What's the typical term for a debenture?
They are usually long-term instruments, often 10 years or more.
Does an indenture include financial covenants?
Usually, it includes covenants to protect the lender's interests.
Who can issue debentures?
Corporations, municipalities, governments, or financial institutions.
Can indentures apply to any type of debt?
Yes, they're versatile documents used in various debt agreements.
Are debentures equity instruments?
No, they are debt instruments.
Who drafts the indenture?
Typically, the borrower's legal team drafts it.
Are debenture interest payments fixed?
Typically, but rates can be variable in some cases.
What happens if terms in the indenture are breached?
It may trigger default, leading to legal action or restructuring.
Are all loan agreements indentures?
Not all, but any formal debt agreement can be called an indenture.
Can debentures be traded?
Yes, they're often traded on the secondary market.
Is an indenture the same as a bond agreement?
Essentially, as it specifies the terms of the bond.
What rights do debenture holders have?
To receive interest payments and the return of principal.
Do indentures need to be public documents?
Generally, for publicly issued bonds, they are.
About Author
Written by
Janet WhiteJanet White has been an esteemed writer and blogger for Difference Wiki. Holding a Master's degree in Science and Medical Journalism from the prestigious Boston University, she has consistently demonstrated her expertise and passion for her field. When she's not immersed in her work, Janet relishes her time exercising, delving into a good book, and cherishing moments with friends and family.
Edited by
Aimie CarlsonAimie Carlson, holding a master's degree in English literature, is a fervent English language enthusiast. She lends her writing talents to Difference Wiki, a prominent website that specializes in comparisons, offering readers insightful analyses that both captivate and inform.
