A debenture is a type of debt instrument that is issued by a company or municipality as a way to raise capital. Unlike a loan, a debenture is not secured by physical assets or collateral, meaning that if the issuer is unable to repay the debt, there is no asset that can be seized to repay the debenture holders. Instead, debenture holders rely on the creditworthiness and reputation of the issuer to repay the debt.

Debentures are issued with a promise to pay a fixed amount of interest to the debenture holders, as well as to repay the principal on a specified maturity date. These interest payments are typically paid semi-annually or annually. They are generally considered to be a lower-risk investment than common stock, but they also tend to offer lower returns. Debentures are often used by companies and municipalities to raise capital for long-term projects or to refinance existing debt.

Debentures are a popular way for companies to raise capital. They can be issued by both publicly traded and privately held companies. When a company issues debentures, it is essentially borrowing money from investors and promising to pay them back with interest. The debentures are typically sold to institutional investors, such as pension funds and insurance companies, as well as to individual investors. Banks and other financial institutions may also buy debentures as a way to invest their own funds. Debentures issued by large and well-established companies are often considered to be low-risk investments and are highly sought after by investors.