Junior Debt refers to a type of debt that ranks below senior debt in terms of repayment priority. In simple terms, if a company faces liquidation or bankruptcy, holders of junior debt are repaid only after all senior debt obligations have been met. This makes junior debt riskier compared to senior debt but potentially more rewarding, as it often offers higher interest rates to compensate for the increased risk.

From a corporate finance perspective, junior debt plays an important role in a companyís capital structure. It provides additional funding without diluting ownership, unlike equity financing. Companies often use this form of debt to bridge funding gaps, finance expansion, or restructure their balance sheets. However, since it carries a higher risk for lenders, junior debt usually comes with stricter covenants or higher interest rates.

For investors, junior debt instrumentsósuch as subordinated bonds or mezzanine debtóoffer an opportunity to earn enhanced returns. These instruments sit between senior debt and equity in the hierarchy of claims. While they provide fixed income, they are more vulnerable to default risk. Hence, investors must assess the issuerís creditworthiness and repayment capacity before investing.

In the Indian market, institutions such as non-banking financial companies (NBFCs) and infrastructure firms often issue junior debt to raise capital. Regulatory bodies like the Securities and Exchange Board of India (SEBI) ensure transparency and fair practices in such issuances. Retail investors can access these instruments through debt funds or structured financial products, though suitability depends on individual risk appetite.

In summary, junior debt is a high-risk, high-reward investment tool that helps companies optimize their capital structure and provides investors with opportunities for superior returns, provided they understand the associated credit and repayment risks.