What advantages does the issue of debentures provide over the issue of equity shares?

Debentures are an instrument for raising long term debt capital that a company can raise funds through the issue of debentures and bear a fixed rate of interest. Debenture holders are termed as creditors of the company.

The advantages do the issue of debentures provide over the issue of equity shares are –

i. The issue of equity shares means a reduction of ownership of a firm while debentures holders do not have to pay any rights in the company. They do not have any membership or voting rights, they just have to fixed amount as payment.

ii. Debentures carry a fixed rate of return from the profit they earned and the company has to pay only the interest to its holders whereas the company that issue shares have to pay dividends to the shareholders.

iii. Financing through debentures is less costly as compared to the cost of preference or equity capital as the interest payment on debentures is tax-deductible.