Been reading about fixed income seriously for a few months now and this one still trips me up. Some articles say bonds and debentures are the same. Some say debentures are unsecured bonds. Some say it depends on the issuer. When I look at BondScanner I see both terms used and I genuinely cannot tell if there is a real difference or just terminology chaos.
Disc: not a beginner question, just an annoying one that keeps coming up.
bonds = secured, debentures = unsecured. that’s the whole difference yaar. no?
That is actually a common misconception. The secured vs unsecured axis does not map onto bond vs debenture in Indian markets. You can have secured NCDs, which are debentures, and you can have unsecured corporate bonds. The real distinction is about who issues the instrument. Bonds in the strict sense come from governments, PSUs, and financial institutions. Debentures are issued under the Companies Act by private and public sector companies. The legal anchor is Section 2(30) of the Companies Act 2013, which actually defines debentures to include bonds and other company securities. So technically all company-issued bonds are debentures, but not all debentures are bonds.
NCDs on BondScanner are debentures. all of them.
okay so ncd = non convertible debenture = debenture. got it. but then why does everyone call them corporate bonds lol even the platforms say that
Because in practice the industry has never been strict about this. I have been investing in fixed income for over fifteen years and the terms have always been used loosely. What matters more in everyday usage is the structure: is it convertible to equity or not, is it secured or unsecured, who is the issuer. The SEBI NCS Regulations, which stands for Non-Convertible Securities Regulations, actually governs both bonds and debentures under the same framework. So even at the regulatory level, the distinction is not as sharp as the textbooks suggest.
Helpful. So to summarise what I am hearing: in strict legal terms debentures are what companies issue, bonds are what governments and institutions issue, but colloquially everyone uses corporate bond to mean NCD. And the securities law treats them similarly anyway.
roughly yes. and the part i’d add is that “debentures are riskier than bonds” which a lot of people say is not a useful rule. a AAA secured NCD from bajaj finance is safer than a lot of lower-rated instruments that get called bonds. the name is just the name. what actually matters is the rating, the issuer’s balance sheet, and whether it is secured.
That is the right place to land on this. The bond vs debenture terminology helps you understand the legal structure and who issued the instrument. It does not tell you much about investment risk. A well-rated secured NCD can be a better investment than a poorly rated unsecured bond. That said, as a rough heuristic: if something is issued by the central government it is a bond with sovereign backing, if it is issued by a private company it is a debenture and you are taking on that company’s credit risk. Everything beyond that needs to be evaluated on its own merits.