The Key Difference Between Debenture and Bond

debenture vs bond
Feature	Debenture	Bond
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.