Debentures differ from bonds, for the simple fact that they are not guaranteed by tangible assets. The issuer’s credit rating and reputation are the only determining factors.
Finding a debenture’s market value
Exchange-traded debentures trade like bonds (based on 100). However, some debentures are traded on public exchanges, such as the Toronto Stock Exchange or New York Stock Exchange. The stock symbol of a debenture is always followed by “.DB” (e.g., ARE.DB).
For debentures traded on the bond market, please visit our section dedicated to bonds.
The different types of debentures
Companies seek new capital for various reasons, and debentures are debt securities.
These debentures usually pay interest coupons every six months. As such, if you purchase a debenture with a face value of $10,000 and a 3% interest rate, you will receive a payment of $150 every six months.
The benefits of debentures
Debentures are usually safer than stocks since debenture owners are considered to be creditors and therefore have priority over shareholders in the event of bankruptcy.
The advantage of a semi-annual interest payment is also more attractive to some investors, not to mention the fact that the yield at maturity is known at the time of purchase (if the debenture is held until maturity and rates determined at the time of issuance).
Finally, risk is assessed through the issuer’s credit rating, which is assigned by a credit rating agency. It is therefore easier to determine the value of the product.
Risks associated with debentures
The main risk associated with debentures is the issuer’s default. Also, some debentures are redeemable at the issuer’s option at any time. It is therefore important to read the prospectus before purchasing this type of product.
Finding the right debenture for your situation
Much like bonds, debentures are a great way to further diversify your portfolio.
You can find the right debenture for your situation by using filters to build a list of securities that match your criteria. Note that the symbol for debentures always ends with “.DB”.
Borrowing to purchase debentures
You can use a margin account to purchase debentures.
To learn more about margin accounts, please visit our dedicated brokerage account page.
You can trade debentures the same way you trade stocks
. They are quoted in lots of 100. When you place an order, the quantity must be a multiple of 1,000.