| Definition |
A type of debt instrument not always backed by physical assets or collateral. |
A fixed income instrument representing a loan made by an investor to a borrower, usually backed by collateral. |
| Backing |
Usually unsecured and backed only by the creditworthiness of the issuer. |
Often secured with specific assets or revenues pledged as collateral. |
| Issuer |
Primarily issued by private companies and corporations. |
Issued by governments, public sector companies, and large corporations. |
| Risk Level |
Higher risk due to lack of collateral. |
Lower risk if backed by government or secure assets. |
| Return |
Offers higher interest rates to compensate for increased risk. |
Generally provides lower returns due to lower risk. |
| Interest Payment |
Paid at regular intervals; usually fixed. |
Fixed or floating rate, paid periodically. |
| Tenure |
Usually medium to long-term duration. |
Can be short, medium, or long-term. |
| Legal Protection |
Less protected in case of default or bankruptcy. |
More legal protection due to collateral backing. |
| Regulation |
Regulated by SEBI and Companies Act in India. |
Regulated by government and central banks, like RBI for government bonds. |
| Convertibility |
May be convertible into equity shares. |
Typically non-convertible, unless specified. |
| Priority in Liquidation |
Lower priority compared to secured creditors. |
Higher priority if secured, especially government bonds. |
| Transferability |
Easily tradable in the market if listed. |
Also tradable, especially in bond markets or exchanges. |
| Type of Income |
Interest income, taxable under “Income from Other Sources.” |
Interest income, often with tax benefits on some government bonds. |
| Use of Funds |
Used for business expansion, working capital, or refinancing. |
Used for infrastructure, fiscal deficit, or long-term projects. |
| Investor Type |
More attractive to risk-tolerant investors seeking higher returns. |
Preferred by conservative investors seeking capital safety. |
| Example Instruments |
Convertible debentures, non-convertible debentures (NCDs). |
Government securities (G-Secs), municipal bonds, corporate bonds. |
| Marketability |
Can be listed and traded on stock exchanges. |
Traded in bond markets; highly liquid for government bonds. |
| Repayment |
Repaid at maturity along with interest. |
Principal repaid on maturity with interest paid over time. |
| Suitability |
Suitable for aggressive investors seeking high yield. |
Ideal for investors looking for stability and fixed returns. |
| Taxation |
Interest is fully taxable; no tax-free variants. |
Some bonds like tax-free municipal or infrastructure bonds offer tax exemptions. |
| Example (India) |
Tata Capital NCDs, L&T Finance debentures. |
RBI Bonds, SBI Infrastructure Bonds, Indian Government G-Secs. |
| Documentation |
Offer letter and trust deed required under Companies Act. |
Bond certificates or demat credit through exchanges or depositories. |
debenture vs bond