Bonds and debentures are both types of debt instruments that can be issued by corporations or governments to raise capital. However, they differ in the way they are secured. Bonds are backed by the specific assets of the issuer, such as property, equipment, or inventory. This means that if the issuer defaults on the bond payments, the bondholders have a claim on those assets and can sell them to recover their money. Debentures, on the other hand, are not secured by any real assets or collateral. They are only backed by the general creditworthiness and reputation of the issuer. This means that if the issuer defaults on the debenture payments, the debenture holders have no recourse to any specific assets and have to rely on the issuer’s ability to pay from its future earnings or liquidation proceeds.
References: Canadian Investment Funds Course, Unit 5, Section 5.1
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