What are Bonds and debentures Class 12

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Confused, What are Bonds and debentures as per the syllabus of class 12 CBSE, ISC, and state Boards.

Generally, Bonds, are similar to debentures. Bonds are also a kind of public loan raised by the public Ltd company.

Earlier Bonds were only issued by Government companies. But nowadays, Semi-government and non-government organizations can also issue it.

However, Bonds and debentures are the same if issued at the predetermined (fixed) rate of interest. Absolutely there is no difference.

Debentures are always issued at a fixed rate of interest, that is calculated on face value.

On the other hand, Bonds can also be issued without a predetermined rate of interest. Such bonds are called Deep discount bonds or zero-coupon bonds

What is Deep discount bods (Zero Coupon Bonds)

A deep discount bond or Zero-coupon bond is one that is issued without a prefixed rate of interest and its issue price is heavily discounted.

The difference between the issue price and the redemption price represents the total interest to be spread over the duration of the bond.

A proportionate amount of total interest is charged to the Statement of Profit and Loss every year over the lifetime of the bond.

For example, Reliance issued Debentures of ₹ 100 face value at a 30% discount for 5 years. The issue price is ₹ 70 and after 5 years, the company would repay ₹100.

Thus the difference between the issue price and redemption price is ₹30. This ₹ 30 is considered as the rate of interest paid on such debentures.

As no rate of interest is specified on such debentures. These are Zero-coupon bonds.

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Anurag Pathak
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