A debenture is essentially a corporate bond — a loan from the investor to the issuing company, evidenced by a formal legal instrument. The company commits to paying interest (the "coupon") at specified intervals (typically semi-annually or annually) and to repaying the full face value (principal) on the maturity date.
Debentures rank above ordinary shares in a company's capital structure: in the event of insolvency, debenture holders are paid before equity shareholders. This priority makes debentures less risky than shares but generally limits their upside — they don't participate in profit growth the way shares do.
On the CSE, companies list debentures to access medium- to long-term capital at fixed rates. Common tenors range from 2 to 10 years. Some debentures are secured against specific company assets; unsecured debentures carry more risk but may offer higher coupon rates to compensate.
Interest income from debentures is generally subject to withholding tax in Sri Lanka. The net yield must be compared against other income-generating options such as fixed deposits, treasury bills, and dividend-paying shares.