Government Debentures

Government debenture is an unsecured loan offered by an individual to the government. Without paying any collateral for the debenture, government pays high rate of interest to the money-lenders. Debentures are also called fixed interest or debt securities. It is a source of regular income. Generally these come as long term or short term debentures. The security term generally consists of twelve months to five years, but these can be sold in the secondary market. There is also tax relief on the income from government debentures and because of this, they are always in demand.

Debentures are always different from stocks and bonds, but basically, all these three are different forms of investment. The difference is mainly because of the varying risk factors and returns reflected by the higher risks and corresponding higher returns of the debentures.

When somebody buys a stock, he/she becomes one of the owners of the company and faces 'floating' fortunes, related with the company's financial graph. But debentures are more secured investment as payments with high interest rates are guaranteed. Government is bound to pay interest on the borrowed money and once the debenture matures, all the borrowed money is returned. So, this is understandable that, it is actually the interest which one gains from the government debentures.

Again, the investor needs to understand that, government debentures and government bonds are similar, but bonds carry more security than debentures.

In both of these investment forms, interest and value is guaranteed, but in case of liquidation, bond holders receive the payment first. Debenture holders have no collateral, which they can claim from the company, in case bankruptcy takes place and to compensate such losses high interest rates are paid to them. The bondholders enjoy the collateral.