|Generally, bonds are secured by collateral.
|CollateralDebentures may or may not be backed by collateral. Thus, investors have to purchase based on the credit rating of these companies.
|The tenure of Bonds is generally longer than debentures.
|Companies issue debentures for a short or long term period on the basis of their fund requirement
|Mostly large corporations, government agencies, financial institutions, etc. issue bonds
|Mostly private companies issue debentures.
|Bonds offer lower interest rates as there is repayment stability in future and also collateral backs them.
|Debentures offer higher interest rates as they are unsecured. Also, the investor relies only on creditworthiness and reputation of the issuer.
|The interest payment on bonds is on an accrual basis, i.e. monthly, half-yearly or annually. The performance of the business does not affect these payments.
|The payment of interest on debentures is periodical as per the prospectus. However, this depends on the performance of the issuing company.
|Bonds are safer than debentures as some form of collateral backs them. Also, the issuing party is reviewed periodically and rated by the credit agencies.
|Debentures are riskier as any collateral does not back them. It is only the reputation of the issuing company and the ratings by credit rating agencies.
|Bonds cannot be converted into equity shares of the company
|Issuing company can convert only convertible and also partially convertible debentures into equity shares on the expiry as specified in the clause.
|During company liquidation, Bondholders are given priority over the debenture holders.
|During liquidation, the debenture holders are paid after the bondholders.