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What is the difference between bonds and debentures?

A debenture is a debt security issued by a corporation that is not secured by specific assets, but rather by the general credit of the corporation. Stated assets secure a corporate bond, unlike a debenture, but in India these are used interchangeably.

Bonds are lOUs between a borrower and a lender. The borrowers include public financial institutions and corporations. The lender is the bond fund, or an investor when an individual buys a bond. In return for the loan, the issuer of the bond agrees to pay a specified rate of interest over a specified period of time.

Typically bonds are issued by PSUs, public financial institutions and corporates. Another distinction is SLR (Statutory liquidity ratio) and non-SLR bonds. SLR bonds are those bonds which are approved securities by RBI which fall under the SLR limits of banks.

Keywords

Fixed Income, Bonds, Debentures

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