A debenture, or corporate bond, is a long-term financial instrument with a term of one year or longer, issued by a private company as debtor. The company will repay investors the face value of the debenture upon maturity, and will also pay interest on a periodic basis throughout the term.
The investor can forecast the future return of a debenture according to different investment conditions in order to invest appropriately.
Regular payment of interest
The issuer will pay interest to the investor throughout the life of the debenture. Interest is paid at either a fixed rate or variable rate (floating rate).
A capital gain or loss may occur if the investor sells a debenture before maturity, based on the difference between the purchase price and selling price.
For a debenture bought in the secondary market, although the investor will receive interest payments from the issuer at the specified rate (i.e., the coupon rate), the total return may not equal the par value of the debenture. This means that an investor in the secondary market may receive an effective rate of return that is not equal to the stated interest rate (coupon rate). Yield to maturity (YTM) is the rate of return that the buyer receives through the maturity of the debentures, based on the purchase price.
Warning: Investors should understand the terms, conditions, potential returns and risks before investing.