 What Is a Debenture?

Debentures are a debt instrument used by companies and government to issue the loan. The
loan is issued to corporates based on their reputation at a fixed rate of interest. Debentures
are also known as a bond which serves as an IOU between issuers and purchaser.
Companies use debentures when they need to borrow the money at a fixed rate of interest
for its expansion. Secured and Unsecured, Registered and Bearer, Convertible and Non-
Convertible, First and Second are four types of Debentures

Advantages and Disadvantages of Debentures

Advantages of Debentures

 Investors who want fixed income at lesser risk prefer them.

 As a debenture does not carry voting rights, financing through them does not dilute
control of equity shareholders on management.

 Financing through them is less costly as compared to the cost of preference or

equity capital as the interest payment on debentures is tax deductible.

 The company does not involve its profits in a debenture.

 The issue of debentures is appropriate in the situation when the sales and earnings
are relatively stable.
Disadvantages of Debentures

 Each company has certain borrowing capacity. With the issue of debentures, the
capacity of a company to further borrow funds reduces.

 With redeemable debenture, the company has to make provisions for repayment on
the specified date, even during periods of financial strain on the company.

 Debenture put a permanent burden on the earnings of a company. Therefore, there

is a greater risk when the earnings of the company fluctuate.
Types of Debenture

1. Secured and Unsecured:

Secured debenture creates a charge on the assets of the company, thereby mortgaging
the assets of the company. Unsecured debenture does not carry any charge or security on the
assets of the company.

2. Registered and Bearer:

A registered debenture is recorded in the register of debenture holders of the company. A
regular instrument of transfer is required for their transfer. In contrast, the debenture which
is transferable by mere delivery is called bearer debenture.

3. Convertible and Non-Convertible:

Convertible debenture can be converted into equity shares after the expiry of a specified
period. On the other hand, a non-convertible debenture is those which cannot be converted
into equity shares.

4. First and Second:

A debenture which is repaid before the other debenture is known as the first debenture. The
second debenture is that which is paid after the first debenture has been paid back

 Insurance
Insurance is a term in law and economics. It is something people buy to protect
themselves from losing money. People who buy insurance pay a "premium" (often paid
every month) and promise to be careful (a "duty of care"). In exchange for this, if
something bad happens to the person or thing that is insured, the company that sold the
insurance will pay money back
There are different kinds of insurance.
There are life insurance and general insurance.
In life insurance, someone ensures their life or someone else's life. At the death of insured
person or on the date of maturity whichever happens earlier, the amount insured will be
paid.
General insurance is a non-life policy, such as:

 fire insurance
 marine insurance
 travel insurance
 life Insurance
 home insurance
 car insurance
 commercial insurance

1 . Fire Insurance
The term fire insurance refers to a form of property insurance that covers
damage and losses caused by fire. Most policies come with some form of fire
protection, but homeowners may be able to purchase additional coverage in case
their property is lost or damaged because of fire. Purchasing additional fire
coverage helps to cover the cost of replacement, repair, or reconstruction of
property above the limit set by the property insurance policy.

2. Marine Insurance
Marine insurance covers the losses or damages caused to ships, terminals and any
transport or cargo by which goods are transferred, acquired, or held between different
points of origin and final destination. The term may also apply to inland marine but it is
usually used in the context of ocean marine insurance. Marine insurance is a haven for
transporters and shipping corporations because it helps to lower the aspect of financial
loss due to cargo loss.

3 .Travel insurance
Travel insurance is a type of insurance that covers the costs and losses associated with
traveling. It is useful protection for those traveling domestically or abroad.
According to a 2020 NerdWallet survey of 2,000 Americans, only one in five Americans
bought travel insurance for leisure trips prior to COVID-19. But 45% say they're likely to
purchase travel insurance for future leisure trips

4 . Home Insurance
Homeowners insurance is a form of property insurance that covers losses and damages to
an individual's residence, along with furnishings and other assets in the home.
 Homeowners insurance also provides liability coverage against accidents in the home or
on the property.

5. Car Insurance
Vehicle insurance (also known as car insurance, motor insurance, or auto insurance)
is insurance for cars, trucks, motorcycles, and other road vehicles. Its primary use is to
provide financial protection against physical damage or bodily injury resulting
from traffic collisions and against liability that could also arise from incidents in a
vehicle. Vehicle insurance may additionally offer financial protection against theft of the
vehicle, and against damage to the vehicle sustained from events other than traffic
collisions, such as keying, weather or natural disasters, and damage sustained by
colliding with stationary objects. The specific terms of vehicle insurance vary with
legal regulations in each region.
6. commercial insurance 
Plain and simply, commercial insurance is insurance that protects businesses. It covers
businesses against losses, arising from things like damage to property or injury to
employees, and is a term commonly used to label core business insurance covers like
public liability and employers’ liability.

Derivative Bond

Meaning A derivative is a financial security with a A bond is a debt security, similar to an

value that is reliant upon or derived IOU. Borrowers issue bonds to raise
from, an underlying asset or group of money from investors willing to lend
assets—a benchmark. The derivative them money for a certain amount of
itself is a contract between two or more time.
parties, and the derivative derives its
price from fluctuations in the underlying
asset.
Types A. Futures A. Corporate bonds 
B. Forwards B. High-yield. 
C. Swaps C. Municipal bonds,
D. Options D. Investment-grade.  

Benefits 1. capital and earning a predictable

1. Hedging risk exposure return
2. Underlying asset price determination 2. provide steady streams of income
 from interest payments prior to
3. Market efficiency maturity.
4. Access to unavailable assets or
markets
Characteristics Its value changes in response to a change Face value
in price of, or index on, a specified The coupon rate
underlying financial or non-financial Coupon dates
item or other variable; The maturity date 
It requires no, or comparatively little, The issue price
initial investment; and
It is to be settled at a future date

Example any derivative instruments are leveraged.

That means a small amount of capital is
required to have an interest in a large
amount of value in the underlying asset.

For example, an investor who expects

the S&P 500 Index to rise in value could
buy a futures contract based on that
venerable equity index of the largest
U.S. publicly traded companies.
The notional value of a futures contract
on the S&P 500 is $250,000.
Bond example

Real World Bond Example

A bond represents a promise by a borrower to pay a lender their principal and usually
interest on a loan. Bonds are issued by governments, municipalities, and corporations.
The interest rate (coupon rate), principal amount and maturities will vary from one bond
to the next in order to meet the goals of the bond issuer (borrower) and the bond buyer
(lender). Most bonds issued by companies include options that can increase or decrease
their value and can make comparisons difficult for non-professionals. Bonds can be
bought or sold before they mature, and many are publicly listed and can be traded with a
broker.

While governments issue many bonds, corporate bonds can be purchased from
brokerages. If you're interested in this investment, you'll need to pick a broker. You can
take a look at Investopedia's list of the best online stock brokers to get an idea of which
brokers best fit your needs. 
Because fixed-rate coupon bonds will pay the same percentage of its face value over
time, the market price of the bond will fluctuate as that coupon becomes more or less
attractive compared to the prevailing interest rates.

Imagine a bond that was issued with a coupon rate of 5% and a $1,000 par value. The
bondholder will be paid $50 in interest income annually (most bond coupons are split in
half and paid semiannually). As long as nothing else changes in the interest rate
environment, the price of the bond should remain at its par value.

However, if interest rates begin to decline and similar bonds are now issued with a 4%
coupon, the original bond has become more valuable. Investors who want a higher
coupon rate will have to pay extra for the bond in order to entice the original owner to
sell. The increased price will bring the bond’s total yield down to 4% for new investors
because they will have to pay an amount above par value to purchase the bond.

On the other hand, if interest rates rise and the coupon rate for bonds like this one rise to
6%, the 5% coupon is no longer attractive. The bond’s price will decrease and begin
selling at a discount compared to the par value until its effective return is 6%.

The bond market tends to move inversely with interest rates because bonds will trade at a
discount when interest rates are rising and at a premium when interest rates are falling.

 Cash Flow vs Fund Flow

Points of
Cash Flow Fund Flow
Difference

It represents the inflow

It highlights any changes in working
and outflow of cash as
Meaning capital of a company from the end of
well as its equivalents for
one period to another.
a specified period.

Accounting Accounting for cash flow Fund flow is accounted on the basis of
method is done only when liquid accrual of funds and not actual payment
cash is involved in the or collection.
form of currency or bank
 transfer.

Cash flow is used to

Use of fund flow extends to the
identify the net cash flow
Utility understanding of a company’s overall
of a business for a given
financial standing.
period.

Cash flow calculation

Analysis of
helps identify a business’s Calculation of funds flow helps assess a
business
liquidity position for the business’s position in the long term.
position
short term.

All disclosures pertaining Funds flow allows disclosure and

Disclosures
to cash inflow and outflow identification of all the sources of funds
made
are made under cash flow. generation and the application thereof.

Inclusion of a cash flow Inclusion of fund flow statements in the

Inclusion in the statement is mandatory in annual financial statement is not
annual financial the annual financial statutorily required, and a business can
statement statement of specified do so to generate investor confidence or
companies. meet their demands thereon.

Cash flow statement and Funds flow statement and analysis

Use in
analysis helps in cash usually serve to help in the periodic
Budgeting
budgeting for a business. capital budgeting for a business

Equity share and Preference share

Basis Of
Differentiation Equity Shares Preference Shares

Definition Also known as ordinary shares. Preference shares are the shares which

Equity share is the foundation of the promise the holder a preference over
company as it raises fund. These the equity shares. These can be
cannot be converted to preference
 Basis Of
Differentiation Equity Shares Preference Shares

shares converted to equity shares

Dividend  Equity shares do not have  Under preference shares,

right to receive dividend based on time, cumulative or non-
 Under this the rate of dividend cumulative are entitled for the
is fluctuating dividend
 Here, the rate of dividend is
fixed

Voting rights Voting rights under general meeting Do not have any voting rights

Type
Types Public These are considered as ordinary These come in various types like:
shares and thus they do not have any
types  Convertible and non-
Traded as BSE: 500034
convertible
NSE: BAJFINANCE  Cumulative and non
BSE SENSEX Constituent cumulative
NSE NIFTY 50 Constituent  Non participatory, etc.

Liquidation During liquidation, shareholders will

INE296A01024 The shareholders will have first right
ISIN
have residual right over the asset even after the repayment
after the repayment to preference
Industry Financial Services
shares of the company

Founder Rahul Bajaj

Participation rights They are primarily responsible for the Do not have any participation rights in
management of the company the company's 
Headquarters Pune, Maharashtra ,India

Key people Sanjiv Bajaj, Rajeev Jain

Products Lending, Fixed Bajaj Finance Ltd

Deposits, Mutual Funds

Revenue  US$715 million

Parent Bajaj Finserv Ltd

Subsidiaries Bajaj Financial Services Ltd.,

Bajaj Housing Finance Ltd

Website www.bajajfinserv.in/finance
Bajaj Finance Limited, a subsidiary of  Bajaj Finserv, is an Indian non-banking
financial company (NBFC).
The company deals in  Consumer Finance, SME (Small and Medium-sized
Enterprises) and Commercial Lending, and Wealth Management.

Consumer Finance

Durable Finance
Lifestyle Finance
Digital Product Finance
EMI Card
2 & 3 Wheeler Finance
Personal Loan
Loan against FD
Extended warranty
Gold Loan
Home Loan
Retail EMI
Retailer Finance
E-commerce
Co-branded Credit Card
Co-branded Wallet

SME Finance

Home Loan
Loan against Property
Gold Loan
Lease rental discounting
Business Loan
Loan Against Shares
Professional Loan
Working Capital Loans
Developer Finance
Used Car Finance
Commercial Lending

Vendor Financing
Large Value Lease Rental Discounting
Loans against Securities
Financial Institutions Lending
Light Engineering Finance
Corporate Finance
Warehouse Financing

Investment

Fixed Deposit
Mutual Funds

Headquartered in Pune, Maharashtra, the company has 294 consumer branches

and 497 rural locations with over 33,000+ distribution points

Corporate background
Originally incorporated as Bajaj Auto Finance Limited on March 25, 1987,
the non-bank singularly focused on providing two and three wheeler finance. After
11 years in the auto finance market, Bajaj Auto Finance Ltd launched its initial
public issue of equity share and was listed on the BSE and NSE.
At the turn of the 20th century, the company ventured into the durables finance
sector. In the subsequent years, Bajaj Auto Finance diversified into business and
property loans as well.
In the year 2006, the company’s assets under management hit the Rs.1,000 crore
mark and is currently at Rs.52,332 crore. 2010 saw the company’s registered name
change from Bajaj Auto Finance Limited to Bajaj Finance Limited,

Ownership
The parent company, Bajaj Finserv Limited, holds 57.28% of the total shares  and has a
controlling stake in the subsidiary. Other major investors include Maharashtra Scooters
Limited, Government of Singapore , Smallcap World Fund INC and AXIS Long Term
Equity Fund.