ABSTRACT

                             To decrease the cost of capital organizations selected different sources of capital; These may be Traditional and modern in nature. Modern financial instruments like STRIPS, TIPS, ZERO COUPOUN BONDS, and FCCB and others. The corporate India initiates to avail new avenues to extract opportunity through a new financial instrument namely the Bonus Debenture, It has been emerged in 2001 by FMCG giant HLL and laid a foundation to this innovative financial instrument, followed by some companies in Indian capital market. The bonus debenture issue is subject to approval by the board of directors, the proposal will also have to be approved by the shareholders, High Court and the Reserve Bank of India. Unlike a bonus issue, there is no increase in the company's equity capital. The analyst, however, added that a bonus debenture would impact the company's future earnings since it had to pay interest on them. By issuing bonus shares, the equity of the company does not get altered, but when the bonus debentures are issued, it results in decrease in equity and a corresponding increase in debt. This results in high leverage and thus increases the risk perception of the company. No company would like to witness these kinds of changes in the balance sheet structure. Secondly, bonus shares do not involve cash outlay in any form. But bonus debentures involve three major cash outflows, that are, Dividend distribution tax, cash outflow in terms of interest and outflows at the time of redemption of bonus debentures.

Key words: Bonus debentures, Net worth, Free reserves, Debt equity ratio, Return on capital employed