Debentures are defined as what type of financial instruments?

Debentures are a specific type of bond that are not secured by any physical assets or collateral. Instead, they are backed solely by the creditworthiness and reputation of the issuing corporation or government entity. This means that debenture holders rely on the issuer's ability to repay the principal and interest, rather than having a claim on specific assets in the event of a default.

This characteristic of being unsecured distinguishes debentures from other debt instruments that may be backed by tangible assets, like mortgages or physical property. The credit risk associated with debentures reflects the company's financial strength and ability to generate sufficient cash flow to honor its debt obligations. Investors in debentures typically assess the issuer's credit rating and overall financial stability before purchasing.

As for the other options, stocks with guaranteed dividends do not accurately describe debentures since stocks represent ownership in a company and dividends are not guaranteed. Mutual funds are collective investment schemes that pool money from multiple investors to purchase a diversified portfolio of securities, which is distinct from the debt nature of debentures. Lastly, bonds backed by physical assets imply secured debt, which does not characterize debentures at all.