CSEET · Economic and Business Environment · Indian Financial Markets
In the Indian securities market, which of the following instruments represents a debt obligation of the issuer, under which the holder is entitled to a fixed or floating rate of interest and repayment of principal at maturity?
A debenture is the debt instrument. It acknowledges a loan made to the company, pays interest at a fixed or floating rate and returns principal at maturity. Equity shares, by contrast, represent ownership with residual claims and carry no assured interest or repayment.
- AEquity share
- BDebentureCorrect
- CPreference share capital warrant
- DDepository receipt of equity
Explanation
A debenture is an instrument acknowledging a debt of the company, carrying interest and repayment of principal. An equity share represents ownership and gives residual claim, not a promise of fixed interest. Hence debenture is the debt instrument.
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