Difference Between Bonds and Debentures

Listen to our Podcast: Grow your wealth and keep it secure.

0:00 / 0:00

All types of companies, be it small enterprise, established company, or even the government, require financing for their business operations.

Borrowing funds through loans is one of the common ways to get additional funds. Amongst the various ways to borrow money, Bonds and Debentures are the prominent ones. Both are debt instruments issued by the Government or companies. The institution raises capital by selling bonds whereas the investors get the assurance of fixed returns as interest and principal capital repayment. Depending on the nature of these contracts, features offered are of various types. Let’s look closely at what they mean, how they work and the key difference between bonds and debentures.

Bond Meaning

Bond is the most common type of debt instrument issued by the government, large corporations, or agencies of the government to raise capital.

The borrower uses this money to fund its operations, and the investors are entitled to receive interest on their investment. Bonds fall under the fixed-income class.

Bonds are generally considered a relatively safe investment. It pays its investors a fixed rate of return periodically. A bond’s market value may change over time. Callable , Fixed-rate, Floating-rate, Zero Coupon, and Puttable Bonds are some of the common varieties of bonds available for investors.

Debentures Meaning

A debenture is an unsecured debt instrument that isn’t secured by collateral. Private companies use debentures to raise capital for business expansion, upcoming projects, or for raising short-term capital.

Since the debenture is not secured by collateral, the backing is provided through its creditworthiness reflected through the credit ratings and issuer’s reputation.

Difference Between Bonds and Debentures

Are you thinking what is the difference between bonds and debentures? Here it is. Bonds are secured by their physical assets, unlike Debentures. As bonds are backed by collateral, they carry a lower risk when compared to Debentures, which carry a comparatively higher risk. Know the difference between bonds vs debentures.




DefinitionBonds are debt financial instruments issued by financial institutions, big corporations, and government agencies having the backing of collaterals and physical assets.Debentures are debt financial instruments issued by private companies but are not backed by any collaterals or physical assets.
OwnerA bond owner is known as a bondholder.A debenture owner is known as a debenture holder.
TenureThe tenure is longer.The tenure will be comparatively shorter.
RiskThe risk level is lower as it is backed by collaterals.The risk level is comparatively higher since it’s not backed by any collateral.
CollateralBonds are generally secured by the collateral or physical assets of the issuing company.Debentures are unsecured and are not backed by any collateral. The creditworthiness and reputation of the issuer play a key role in backing.

Who Should Invest in Bonds & Debentures?

Investors who are risk averse should invest in bonds. Bonds carry less risk and are considered to be safer investments than debentures.

Also, bonds are good as long-term investment options as it gives fixed interest payment and the principal at pre-specified durations. Also, they are backed by collateral, unlike debentures which is the main difference between bonds and debentures.

However, investment in debentures can offer comparatively higher returns to investors than bonds. Debentures can be good as a short-term investment option. After weighing both the pros and cons of the two, it’s up to you to decide whether you want to invest in bonds or debentures based on your investment objectives.

Frequently Asked Questions on Debenture vs Bond


Convertible debentures can be exchanged for shares at specific times as per the contract. Since debentures are unsecured, this feature can compensate for the risks associated with the debentures.



It’s a kind of fixed-income debt security sold by companies that is convertible to common shares of the issuing company.



That’s because companies/institutions use them for the purpose of raising capital while assuring the investors of fixed interest payment and repayment of invested capital after pre-defined time intervals.



There are several types of debentures issued by a company. They are: -



a) Secured



b) Unsecured



c) Convertible



d) Non-Convertible



e) Redeemable



f) Non-redeemable



g) Registered



h) Bearer



There are various types of bonds that are issued by financial institutions, government agencies, and corporations. They can differ in the features being offered, the coupon rates and additional attributes that can suit different investors:-

  • Callable Bond
  • Puttable Bond
  • Convertible Bond
  • Zero Coupon Bond


Share this article: 


What is Trade & Carry?

A trader can enhance his/her potential in the stock market with the facility of carry and trade. Learn, what is carry and trade, how to use it and what are the benefits of it.


Share Market Timings in India

Dive into the intricacies of Indian stock market hours, including pre-opening, normal trading & post-closing sessions, along with insights into forex trading timings.


Share Market Timings | BSE & NSE, Opening & Closing | Bajaj Broking

Discover the Indian share market's schedule with our comprehensive guide on share market timings, helping investors align with trading hours for ideal strategies.


Stock Market Trading Holidays

Explore in-depth insights on Stock Market Trading Holidays in our Knowledge Centre. Stay informed with expert analysis, tips, and guidance.


Dividend Yield Calculator

Dividend Yield Calculator: Learn how to calculate and interpret dividend yield to make informed investment decisions and maximize your returns.


What are Penny Stocks

Penny Stock Investing: Learn how to get started in three simple steps & explore the potential rewards of navigating this volatile yet rewarding market.


Difference Between Cash Flow And Fund Flow

Explore in-depth insights on Difference Between Cash Flow And Fund Flow in our Knowledge Centre. Stay informed with expert analysis, tips, and guidance.


Diversification in Investing

Learn the art of diversification in investing: mitigate risk, optimize returns & build a resilient portfolio. Get insights into effective diversification strategies!


What are Equity Shares

Learn about equity shares and their significance. Dive into the basics of equity share investments in the Indian share market.


Zero Coupon Bond

Zero-Coupon Bonds: Know how these bonds offer investors the face value at maturity without periodic interest payments. Delve into the pros & cons of discount bonds!


Can I open multiple demat accounts?

Answer Field

Yes, you can open multiple demat accounts but only under the below conditions:

  • You can open only one demat account per DP using the same PAN card.
  • You can open multiple demat accounts with different DPs using the same PAN card.

No results found

Our Secure Trading Platforms

Level up your stock market experience: Download the Bajaj Broking App for effortless investing and trading

Bajaj Broking App Download

7 Lac+ Users


4.3 App Rating


4 Languages


₹ 3800 Cr MTF Book