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SOURCES OF BUSINESS FINANCE 185 has borrowed a certain amount of Merits money, which it promises to repay at The merits of raising funds through a future date. Debenture holders are, therefore, termed as creditors of the debentures are given as follows: company. Debenture holders are paid (i) It is preferred by investors who a fixed stated amount of interest at want fixed income at lesser risk; specified intervals say six months or (ii) Debentures are fixed charge funds one year. Public issue of debentures and do not participate in profits requires that the issue be rated by a of the company; credit rating agency like CRISIL (Credit (iii) Theissueofdebenturesissuitable Rating and Information Services of in the situation when the sales India Ltd.) on aspects like track record and earnings are relatively stable; of the company, its profitability, debt servicing capacity, credit worthiness (iv) As debentures do not carry voting rights, financing through and the perceived risk of lending. A debentures does not dilute company can issue different types of control of equity shareholders on debentures (see Box C and D). Issue of Zero Interest Debentures (ZID) which management; do not carry any explicit rate of interest(v) Financing through debentures is less costly as compared to cost of has also become popular in recent years. The difference between the face preference or equity capital as the value of the debentureand itspurchase interest payment on debentures is price is the return to the investor. tax deductible. Box B Types of Preference Shares 1. Cumulative and Non-Cumulative: The preference shares which enjoy the right to accumulate unpaid dividends in the future years, in case the same is not paid during a year are known as cumulative preference shares. On the other hand, on non-cumulative shares, dividend is not accumulated if it is not paid in a particular year. 2. Participating and Non-Participating: Preference shares which have a right to participate in the further surplus of a company shares which after dividend at a certain rate has been paid on equity shares are called participating preference shares. The non-participating preference are such which do not enjoy such rights of participation in the profits of the company. 3. Convertible and Non-Convertible: Preference shares that can be converted into equity shares within a specified period of time are known as convertible preference shares. On the other hand, non-convertible shares are such that cannot be converted into equity shares. Reprint 2026-27