Difference between Shares and Debentures
When it comes to investing in the stock market, one of the most popular options is investing in shares or debentures. Both are financial instruments, but they differ in terms of ownership rights and returns.
Definition
Shares represent ownership in a company. When you buy a share, you become a shareholder and own a portion of the company. On the other hand, debentures are a type of debt instrument issued by a company to collect funds from investors.
Ownership
Shareholders have ownership rights and can participate in the management of the company by voting at shareholder meetings. They can also receive dividends as a share of the company’s profits. Debenture holders, on the other hand, do not have ownership rights and cannot participate in the management of the company.
Returns
The return on shares comes in two forms – capital gains and dividends. Capital gains are the increase in the value of the shares over time, while dividends are the portion of profits distributed to shareholders. Debenture holders, on the other hand, receive a fixed interest rate on their investment. The returns on debentures are relatively lower compared to shares, but they are also less risky.
Risk
Investing in shares comes with a certain degree of risk as the value of shares can fluctuate depending on market conditions and the performance of the company. Debentures, on the other hand, are considered less risky as they offer a fixed return on investment.
In conclusion, shares and debentures are two different financial instruments that appeal to different types of investors. While shares offer ownership and higher potential returns, they also come with a higher level of risk. Debentures, on the other hand, offer a fixed return on investment and are considered less risky. It is important to carefully consider your investment goals and risk tolerance before investing in either shares or debentures.
Table difference between shares and debentures
| Shares | Debentures | |
|---|---|---|
| Meaning | Ownership in a company | Loan taken by a company |
| Return | Dividend paid by the company | Interest paid by the company |
| Risk | Higher risk | Lower risk |
| Liability | No liability | Creates a liability for the company |
| Priority of payment | Last in priority | Second in priority after secured creditors |