Very often in this financial market, people used the word bonds and debentures as the same, but they are both distinctive. Yes! They are both debt capital but there are differences between them.
What is a Bond? : A Bond is debt instrument in which an investor provide loans to an entity (a corporate or government) which they borrow the fund for their need and pays the lender a fixed or variable interest for definite period of time. Owners of the bond are debt holder or creditor of the borrower.
- It is typically a loan that is secured by a specific physical asset.
What is a debenture?: A debenture is also a type of debt instrument that is only backed up by creditworthiness & reputation of the issuer.
- It is not secured by physical assets or collateral. It is secured only by the issuer’s promise to pay the interest and loan principal.
Hence this is the main difference between them, otherwise both are debt instrument.