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What are the different types of debentures?

Debentures are divided into different categories on the basis of: (1)convertibility of the

instrument (2) Security

Debentures can be classified on the basis of convertibility into:

Non Convertible Debentures (NCD): These instruments retain the debt character and can not be

converted in to equity shares Partly Convertible Debentures (PCD): A part of these instruments are converted into Equity

shares in the future at notice of the issuer. The issuer decides the ratio for conversion. This is

normally decided at the time of subscription.

Fully convertible Debentures (FCD): These are fully convertible into Equity shares at the

issuer's notice. The ratio of conversion is decided by the issuer. Upon conversion the investors

enjoy the same status as ordinary shareholders of the company.

Optionally Convertible Debentures (OCD): The investor has the option to either convert these

debentures into shares at price decided by the issuer/agreed upon at the time of issue.

On basis of Security, debentures are classified into:

Secured Debentures: These instruments are secured by a charge on the fixed assets of the

issuer company. So if the issuer fails on payment of either the principal or interest amount, hisassets can be sold to repay the liability to the investors

Unsecured Debentures: These instrument are unsecured in the sense that if the issuer defaults

on payment of the interest or principal amount, the investor has to be along with other unsecured

creditors of the company.

What are the different types of debentures?Debentures are divided into different categories on the basis of: (1)convertibility of the

instrument (2) Security

Debentures can be classified on the basis of convertibility into:

Non Convertible Debentures (NCD): These instruments retain the debt character and can not be

converted in to equity shares

Partly Convertible Debentures (PCD): A part of these instruments are converted into Equity

shares in the future at notice of the issuer. The issuer decides the ratio for conversion. This is

normally decided at the time of subscription.

Fully convertible Debentures (FCD): These are fully convertible into Equity shares at the

issuer's notice. The ratio of conversion is decided by the issuer. Upon conversion the investors

enjoy the same status as ordinary shareholders of the company.

Optionally Convertible Debentures (OCD): The investor has the option to either convert these

debentures into shares at price decided by the issuer/agreed upon at the time of issue.

On basis of Security, debentures are classified into:

Secured Debentures: These instruments are secured by a charge on the fixed assets of the

issuer company. So if the issuer fails on payment of either the principal or interest amount, his

assets can be sold to repay the liability to the investors

Unsecured Debentures: These instrument are unsecured in the sense that if the issuer defaults

on payment of the interest or principal amount, the investor has to be along with other unsecured

creditors of the company.

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Pakistan investment bondsThese are long term (3, 5, 10, 15 & 20 years maturity) debt obligation issued by thegovernment, offering a risk free investment to the bond holders at premium interestrates depending on the maturity of the bond. Interest on PIBs is paid through bank

accounts. Income tax on interest amount is deducted at 10%.Federal Investment BondsThis is a long term (3, 5 & 10 years maturity) debt obligation issued by the governmentfrom June 1991, offering a risk free investment to the bond holders at premiuminterest rates was fixed as 13%, 14% and 15% depending on the maturity of the bond.Interest payments on FIB are made through interest warrants. Income tax on interestamount is deducted at 20%.Federal government bondsThis is a long-term debt obligation issued by the government started duringnationalization. These were issued for various purposes such as for banksnationalization, petroleum, shipping, vegetable oil, Shahnawaz Bhutto Sugar Mills,Heavy Mechanical Complex, and land reforms etc.

Federal government commodity bondsThese bonds are issued by the government when repayment of commodity financingby the governmental institutions is not materialized at the maturity date. In other wordsit is negotiation / conversion of commodity operation loans in to bonds.Other federal government bonds / securitiesThese loan securities started from 1963 having fixed interest rate and specific maturitywith the object that the proceeds of the loan will be devoted to meet the capitalexpenditure of the government. Subscription of the loan was received for one day only.The interest was paid on half yearly basis. These loans were issued in the forms ofcertificates and promissory notes. This category would also include the residual bonds/ securities issued by the federal government and not covered anywhere else.

Provincial government securities / bonds / permanent loansProvincial governments loan securities started from 1963 having fixed interest rate andspecific maturity with the object that the proceeds of the loan will be devoted to meetthe capital expenditure of the government. Subscription of the loan securities wasreceived for one day only. The interest was paid on half yearly basis. These loans were14

issued in the forms of stock certificates and promissory notes. This category alsoincludes any type of provincial governments debt obligations/ bonds and negotiablecertificates etc.Local government securities / bondsAll type of certificates issued by the local/ city governments, which are evidence ofdebt on which the issuer promises to pay the holder a specified amount of interest fora specified length of time, and to repay the loan on its maturity.