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Advantages of Debenture

Advantages of Debenture:

Debenture is one of the major parts of the long-term sources of finance which of consists the following important advantages:

1. Long-term sources: Debenture is one of the long-term sources of finance to the
company. Normally the maturity period is longer than the other sources of finance.

2. Fixed rate of interest: Fixed rate of interest is payable to debenture holders hence it is most suitable of the companies earn higher profit. Generally, the rate of interest is lower than the other sources of long-term finance.

Advantages of Debenture
[Post Image Courtesy of JK1991 at FreeDigitalPhotos.net]

3. Trade on equity: A company can trade on equity by mixing debentures in its capital structure and thereby increase its earning per share. When the company apply the trade on equity concept, cost of capital will reduce and value of the company will increase.

4. Income tax deduction: Interest payable to debentures can be deducted from the total profit of the company. So it helps to reduce the tax burden of the company.

5. Protection: Various provisions of the debenture trust deed and the guidelines issued by the SEB1 protect the interest of debenture holders.

Sourced From: Financial Management By C. Paramasivan And T. Subramanian

About Author Mohamed Abu 'l-Gharaniq

when an unknown printer took a galley of type and scrambled it to make a type specimen book. It has survived not only five centuries.

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