Fixed Term, Fixed Interest Debentures

Investing in fixed term debentures provides a reliable income with a fixed rate of return.

The issuing of debentures by companies wishing to raise capital is a traditional form of fundraising with a long history.

What is a debenture?

A debenture is not a bank deposit, but is similar to a bond or certificate of indebtedness. The company issuing the debenture is legally obliged to repay the money to the investor on the maturity date of the debenture. Debentures are generally issued for a specified period of time and usually have a specified rate of interest. This is known as a fixed term, fixed interest debenture.

Are debentures regulated?

All companies operating in Australia must comply with the provisions of the Corporations Act. Companies offering debentures to retail investors must have an Australian Financial Services (AFS) Licence Number authorising them to deal in this type of security. Potential investors can search the AFS Licensee Register by visiting the Australian Securities and Investment Commission website at www.asic.gov.au.

What are the advantages of investing in debentures?

There are several key advantages to investing in fixed term, fixed interest debentures:

• you can know what return your capital will earn over a given period of time.
• you know when you will be able to access your capital should it be required for other purposes.
• choosing a fixed term, fixed interest debenture that pays interest on a monthly basis means you have a reliable and consistent stream of income.
• it is a straightforward investment that requires no particular financial expertise on the part of the investor.

Are there tax implications?

Interest paid to an investor generally forms part of the assessable income of that investor for the financial year in which it is paid. In Australia, the financial year runs from 1 July to 30 June. To help it administer the tax system, the Australian Taxation Office issues individuals with a Tax File Number (TFN). If you do not quote a TFN when applying for certain investments, such as debentures, the company issuing the investment product is required to deduct withholding tax from the interest distributions. Information about how to obtain a TFN is available from the Australian Taxation Office website at www.ato.gov.au.

How are debenture funds used?

The capital raised by the issuing of debentures is used for a variety of purposes. In the case of finance company Angas Securities Limited, the money raised is used to fund short term loans (generally for no longer than 12 months) for commercial purposes. This is a specialist area of the lending market and borrowers typically pay a higher rate of interest. All loans are secured by a registered first mortgage over property at a conservative loan to value ratio.

Can I accept an offer made in an Australian prospectus?

If necessary, seek advice. The offer may be made to Australian residents only. Often, no action has been taken to register the prospectus in any jurisdiction outside Australia.