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What's the difference between a bond and a debenture?

Are they simply different words used to mean the same thing? (e.g. debenture sounds more business-like than bond).

7

Investopedia has definitions for both:

Debenture: A type of debt instrument that is not secured by physical asset or collateral.

Bond: A debt investment in which an investor loans money to an entity (corporate or governmental) that borrows the funds for a defined period of time at a fixed interest rate.

Wikipedia's entry for debenture says:

In some countries [debenture] is used interchangeably with bond, loan stock or note.

Seems to me that there's not much difference.

  • I think it was used in the context of public debt in the past. A "debenture" today would be referred to as a "general obligation bond", backed by the faith & credit of the issuer. I believe that a "bond" in the past referred to a debt instrument with a lien on a specific cash flow (aka "revenue bond") or an asset (aka "mortgage bond"). – duffbeer703 Mar 11 '11 at 5:25
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Some additional links which explain their differences. But mostly as @bstpierre says, both are very similar and in some cases the terms may be used inter changeably

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