Difference between Securitization, Bonds and Debentures

Securitization vs Bonds and Debentures may be differentiated as follows.

1. Primary Liability in Securitization vs Bonds and debentures:

The Primary liability of Securitization is not with the issuing company as the securities are bought by the public who will be paid from the long-term assets as and when they mature. But the Primary liability of Bonds and debentures is that of the issuing company.

2. Repayment in Securitization vs Bonds and debentures:

There is classification of debt instruments according to the long-term assets which are backing them in case of securitization. But in case of bonds and debentures though there may be different types, the repayment is not based on any asset. It is as per the liquidity position of the company.

3. Risk factors in Securitization vs Bonds and debentures

In Securitization, there is absolute safety and security for the debt instruments as these are issued against certain illiquid assets. But Bonds and debentures are issued not on the backing of any assets but on the capacity of the company. Hence they carry more risks.

4. Turnover of funds in Securitization against bonds and debentures:

In Securitization, the turn over of funds will increase the earning capacity of the institution. But in case of bonds and debentures, there is no such possibility as these bonds or debentures are not subject to turn over.

5. Backing of assets:

In Securitization, the debt instruments may not have specific mention of the backing of assets. But certain bonds and debentures will have specific mention of assets against which they are issued. For example, mortgage debenture with fixed charge.