How does bonus debenture work?

HOW IT WORKS. Bonus debentures are issued out of the accumulated profits of the company (reserves and surplus). Just like free shares are credited to you when a company makes a bonus share issue, free debentures are credited to you when it makes a bonus debenture issue.

Can I sell bonus debentures?

The debentures are fully secured. Companies can also list the debentures on the exchanges and you can sell them in the markets if you need cash. Unlike bonus shares, a bonus debenture issue does not increase the equity share base, which dents the earnings per share.

What are fully paid up debentures?

A fully convertible debenture (FCD) is a type of debt security in which the entire value is convertible into equity shares at the issuer’s notice. The ratio of conversion is decided by the issuer when the debenture is issued. Upon conversion, the investors enjoy the same status as ordinary shareholders of the company.

Why do companies issue bonus debentures?

Companies usually opt to divide their profit by issuing dividends or bonus shares. However, a few companies have divided their profit by issuing BDs. BD is that form of an issue that has innate characteristics of a bonus share and debentures in addition to certain other characters that is unique to itself.

Are bonus debentures taxable?

Since the issue of bonus debentures is treated as ‘deemed dividend’ under the provisions of the Income Tax Act, 1961, Accordingly the Company remitted Rs. 690,222 as dividend distribution tax and utilized general reserve for the payment of the same.

Are debentures good investment?

Why debentures are safer investments compared to stocks Debentures are considered safer investment vehicles compared to stocks because their value cannot be as easily manipulated as that of stocks. More often then not, the companies which issue debentures are massive companies with a substantial reputation.

What can you do with debentures?

Companies use debentures as fixed-rate loans and pay fixed interest payments. However, the holders of the debenture have the option of holding the loan until maturity and receive the interest payments or convert the loan into equity shares.