Short answer: Bonds and debentures are both debt instruments, which means the investor lends money to an issuer and is repaid with interest. The key difference is who issues them. Bonds come from governments, government bodies, or large companies, while debentures come from companies raising capital.
Last reviewed: 6 November 2026
At a glance
| Feature | Bonds | Debentures |
|---|---|---|
| Who issues it | Governments, government bodies, or large companies | Companies |
| Why it is issued | To borrow money | To raise capital |
| Income to the investor | Periodic coupon interest | Regular interest |
| Repayment | Principal returned at maturity | Principal returned at maturity |
| Credit risk | Government bonds are generally low risk; corporate bonds depend on the issuer | Depends on the issuer |
What is a bond?
A bond is a debt security, meaning a loan the investor makes to the issuer in exchange for a written promise of repayment. The investor earns coupon interest, which is the periodic interest payment the bond makes. At maturity, the end date of the bond, the investor gets back the principal, the original amount lent.
Bonds are issued by governments, government bodies, and large companies. Because the issuer can be a government, the range of bond issuers is wide, and the risk differs widely between them.
What is a debenture?
A debenture is a debt instrument that a company issues to raise capital. The investor earns regular interest and receives the principal at maturity. The difference from a bond is the issuer: only companies issue debentures.
This means the repayment depends on one company’s ability to pay. If that company’s finances weaken, the holder’s interest and principal are affected in the same way.
Where do the risks differ?
Credit risk is the chance that a borrower will not pay interest or principal as promised. Government bonds are generally regarded as low credit risk. Corporate bonds and company debentures carry more risk, and that risk depends on the issuer.
The catch is that a company’s position can change after you invest. A debenture from a company that is doing well today can carry a different risk tomorrow, and the holder carries that change.
Can a debenture become shares?
Some debentures are convertible. A convertible debenture can be turned into the company’s equity shares after a set period. Equity shares are units of ownership in a company, so conversion gives the holder a share of that ownership.
Once converted, the holder is a shareholder rather than a lender. The holder no longer receives the debenture’s fixed interest and principal, and the value of the shares depends on the company’s performance.
What does a credit rating tell you?
Credit rating agencies such as CRISIL, ICRA, and CARE assess an issuer’s ability to repay its debt. A rating indicates how well the issuer is expected to meet its obligations.
A rating does not guarantee repayment. It is an assessment, not a promise, and a rated issuer can still fail to pay.
Why does security matter?
A debt instrument can be secured or unsecured. If it is secured, its holders generally have higher repayment priority than holders of unsecured instruments. Priority decides who is paid first if the issuer cannot pay everyone in full.
This protection is relative. It matters most when an issuer runs short of money, and it does not remove the underlying risk of the issuer’s business.
Hypothetical example: how the interest adds up
The figures below are invented for illustration only and do not refer to any real issue.
Suppose an investor lends Rs 1,00,000 through a debenture that pays 8% interest a year for 3 years. Annual interest is Rs 8,000, so the total interest over 3 years is Rs 24,000. At maturity, the investor receives the Rs 1,00,000 principal, for a total of Rs 1,24,000.
The example assumes the company pays every year and repays in full. If it pays late or not at all, the amounts received would be lower.
Frequently asked questions
Is a debenture the same as a bond?
Not quite. Both are debt instruments that pay interest and return principal at maturity, but bonds can be issued by governments and government bodies as well as companies, while debentures are issued only by companies.
Are government bonds risk-free?
Government bonds are generally regarded as low credit risk. That is not the same as no risk at all.
Does a credit rating guarantee repayment?
No. Ratings from CRISIL, ICRA, and CARE indicate an issuer’s ability to repay, but they do not guarantee repayment.
What happens to a convertible debenture?
After a set period, it can be converted into the company’s equity shares, which gives the holder a share of ownership in the company.
Sources and last check
Facts in this article were checked against the sources below on 6 November 2026. Rules and figures can change; check the primary source before acting.
- upstox.com (broker education)
- groww.in (broker education)
- kotakneo.com (broker education)
This article is general information, not investment advice. MyFinanceBandhu is not a SEBI-registered investment adviser.
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