Explain bond with advantage and disadvantages

Dear student,

Bond or debenture is a document issued by company as a proof of money lent to it by the holder. It is an acknowledgement of debt.

Advantages of bond

From Company's point of view:

i) It is an economical source of raising finance.
ii) Interest paid on debentures are tax deductible.
iii) Debentures do not carry voting rights.

From debenture holder's point of view:

i) Interest on debentures are paid at fixed rate periodically.
ii) They carry safety of investment as bonds carry a charge on company's assets.

Disadvantages of bonds.

From company's point of view:

i) The company has to pay interest on bonds even at time of loss.
ii) Bonds involve mortgage of assets.

From debenture holder's point of view:

i) Debenture holders do not carry voting rights.
ii) Unit price of bonds are high, it is not attractive for small investors.

Regards
 

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Bond are also known as debentures
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Debenture holders or bond holders are also known as creditors of the company
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MERITS OF DEBENTURES :
1. Investment is Safe : Debentures are preferred by those investor who do
not want to take risk and interested in fixed income.
2. Control : Debenture holder do not have voting right.
3. Less Costly : Debentures are less costly as compared to cost of preference
shares.
4. Tax Saving : Interest on Debentures is a tax deductable expense. Therefore,
there is a tax saving.
LIMITATION OF DEBENTURES :-
1. Fixed Obligation : There is a greater risk when there is no earning because
interest on debentures has to be paid if the company suffers losses.
2. Charge on assets : The company has to mortgage its assets to issue
secured Debentures.
3. Reduction in Credibility : With the new issue of debentures, the company’s
capability to further borrow funds reduces.
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