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Meaning of Mortgaged Debentures
Mortgaged debentures are debentures in which the company issues debentures to the applicants by keeping fixed assets as collateral security against the loan. The business issues mortgage debentures in order to purchase the fixed assets or support the routine operations.
Individuals and financial institutions are always more interested in buying mortgage debentures in comparison to other corporate bonds issued by the company. This is because when the company issues mortgage debentures the chances of default in the payment is very low. In addition, these mortgage debentures are secured against fixed assets of the company that provides the investors further assurance.
Secured and Unsecured Debentures
Secured debentures are also termed as mortgage debentures.
These debentures have some asset of the company as collateral security. Since the applicant’s investment is protected against the asset of the company, it is called as a secured debenture.
On non-payment of the amount at the time of redemption of secured debentures by the company, the applicants have the right to claim their due amount by selling the secured assets. On the other hand, unsecured debentures are not secured by any asset of the company. These debentures are issued solely on the credibility of the issuer.
Secured or mortgage debentures are two types:
First Mortgage Debentures
First mortgage debentures are those debentures on which holders have the first claim on the asset charged.
Second Mortgage Debentures
Second mortgage debentures are those debentures on which the holders have the claim on the asset charged after the claim of first mortgage debentures is settled.
Mortgage debentures have been gaining popularity among investors in recent times. The investors feel secure for the money they invest in mortgage debentures. The companies who see growth opportunities are tapping the market by issuing these debentures as it attracts the investors instantly. Thus, we can say that mortgage debentures have wide acceptance among the investors and it fulfills the financial needs of the organization easily.1–4