Difference Between Shares and Debentures – 9 Factors You Should Know Before Investing!
- 4 Min Read
Vinayak Hagargi- 0
Be it any business, it needs funds to grow. There’s a lot of ways one can raise funds for the business. But shares and debentures are some of the best practices.
Although they serve a similar purpose, there are certain differences between shares and debentures that will be covered in this article.
So, without wasting any time, let’s dive into the topic!
Content:
- What are Shares?
- Types of Shares
- What are Debentures?
- Types of Debentures
- Debentures vs Shares (Difference Between Shares and Debentures)
- Quick Summary
- FAQ(Frequently Asked Questions)
What are Shares?
Shares are the smallest unit of any company’s capital. They are basically small financial assets offered in the stock market in order to raise capital for a company. When you buy shares of a company, you become the owner of that company proportional to the value of shares. Also, you will get the benefits of voting, bonus shares, and dividends.
Types of Shares
Shares are basically of two types:
- Equity Shares
- Preference Shares
Shares look logical, isn’t it? You invest some amount into the company and take your share in the profits while being called as the part-owner of the company.
Wait until you hear the complete story, now let’s get a brief idea about debentures as well.
What are Debentures?
Debentures are the borrowed capital or debt instruments of the company. They are generally a long-term debt or unsecured loan that a company has taken from the public, which needs to be paid back with interest in due time.
If you invest in debentures, you will receive a timely interest payment on your investment irrespective of the company’s profit or loss.
Types of Debentures
Debentures can be classified based on a lot of factors, mentioning a few important ones:
- Secured Debentures
- Unsecured Debentures
- Convertible Debenture
- Non-Convertible Debentures
- Registered Debentures
- Bearer Debentures
Suddenly, debentures started looking like a better option, isn’t it?
I agree both shares and debentures are good in their own ways. The next section of this article will help you decide which is better among the two.
Debentures vs Shares
The below table represents the difference between shares and debentures:
| Factors | Debentures | Shares |
| Meaning | Debentures are the borrowed capital for the company. It represents the debts of the company. | Shares are the smallest unit of any company’s capital, representing the ownership of the company. |
| Return on Investments | In form of Interest | In form of Dividends |
| Investor Representation | Creditors | Part owners |
| Voting Rights | No | Yes |
| Risks | Low | High |
| Convertibility | Can be converted into shares | Cannot be converted into debentures |
| Rating | Rated by ICRA, from safest to vulnerable | No rating is given. |
| Security | Combination of secured and unsecured loans, but the returns are assured. | Combination of secured and unsecured loans, but the returns are assured. |
| Repayment | They are prioritized before shares in repayment. | Shares are the last ones to be repaid after all the liabilities are paid. |
Quick Summary
- There’s a lot of ways one can raise funds for their business. But shares and debentures are some of the best practices. Although they serve a similar purpose, there are some differences between shares and debentures.
- Shares are the smallest unit of any company’s capital. Shares are issued in the stock market in order to raise capital.
- Shareholders get the benefits of voting, bonus shares, and dividends on the shares they have invested in.
- Shares are basically of two types:
- Equity Shares
- Preference Shares
- Debentures are the borrowed capital or debt instruments of the company. They are generally a long-term debt or unsecured loan that a company has taken, which needs to be paid back with interest in due time.
- If you invest in Debentures, you will receive a timely interest payment on your investment irrespective of the company’s profit or loss.
- Debentures can be classified based on a lot of factors, mentioning a few important ones:
- Secured Debentures
- Unsecured Debentures
- Convertible Debenture
- Non-Convertible Debentures
- Registered Debentures
- Bearer Debentures
FAQ(Frequently Asked Questions)
1. Are Debentures Less Riskier Than Shares?
Debentures are the borrowed capital and are a form of unsecured loan that a company has taken from the public. Technically they are prioritized over shares during liquidation of the company, making debentures less riskier than the shares.
2. What Are The Advantages Of Debentures?
- You get timely interest payments
- They are prioritized before shares in repayment
- Can be converted into shares
- Rated by ICRA, from safest to vulnerable
- Combination of secured and unsecured loans, but the returns are assured
