Notes On Debenture Vs Debenture Stock:

       The important point of distinctions between debenture and debenture stock are as follows:

  1. A debenture has a nominal value whereas a stock has no nominal value.
  2. Debenture may be fully or partly paid up but stock is always fully paid up.
  3. Debentures can only be transferred into round numbers but stock can be transferred in small numbers.
  4. All debentures are of equal denominations while stock is of unequal amount.
  5. Shares or debentures always bear a distinctive numbers while stock or part of stock does not bear a distinctive numbers.
  6. Debentures can be directly issued to the public but stock cannot be directly issued.
Reasons for unpopularity of Debentures:

       The reasons for the unpopularity of debentures are as follows:

1. High Denominations:

       Debentures, in India are generally of high denominations but Indian investors prefer securities of low denominations. Therefore moderate are not attracted to debentures.

2. Managing Agency System:

       Indian industries are financed primarily by the managing agents. They generally discourage the issue of debentures for fear of losing their financial importance.

3. Heavy Stamp Duty:

       Debentures have been a very costly source of finance with a heavy stamp duty. This heavy stamp duty discourages the investors to invest their funds in debentures.

4. Attitude of Banks:

       Banks and other financial institutions do not show any encouraging attitude towards the company which issues debentures. Banks did not entertain the debentures even as collateral securities. Companies lose their credits in the eyes of banks and other financial institutions.

5. Limited Marketability:

       In the past, there was no regular and steady capital market in India to increase the marketability of the industrial securities. The roles of stock exchanges were also limited.

6. Government Securities:

       The government securities with attractive terms and conditions have adversely affected the marketability of the debentures.

Measures To Popularize Debentures:

       The following steps are taken to popularize debentures:

  1. Debentures with attractive terms may be issued widely
  2. The Debentures that can be converted into shares are encouraged.
  3. The statutory restrictions on institutional investors has been relaxed and this encouraged the financial institutions to invest in debentures
  4. The banks now do not consider a company issuing debentures to be financially weak.
  5. The underwriting facilities have increased the marketability of debentures.
  6. Payment of interest of debentures can be shown as an item of expenditures under the Income Tax Act. This has encouraged companies to issue more debentures.