The primary difference between shares, debentures, and bonds is that shares provide equity ownership in a company, debentures are unsecured loans provided to a company without collateral, while bonds are secured loans backed by collateral, offering more stability and lower risk.
What Is Share?
A share is a unit of ownership in a company that represents a claim on the company’s assets and profits. Shareholders are entitled to a portion of the company’s earnings and may also have voting rights depending on the type of share.
Shares allow individuals to invest in a company and benefit from its growth. For instance, if an investor buys 100 shares of a company at ₹200 per share, their total investment is ₹20,000. If the company’s share price rises to ₹300, the value of the investment increases to ₹30,000, giving the investor a potential gain of ₹10,000.
What Is Debenture?
A debenture is a form of loan that companies use to raise capital, offering fixed interest to investors without securing the debt against assets. Investors earn fixed interest over the term, and the principal is repaid at maturity.
Debentures allow companies to borrow money while providing investors with regular interest payments. For example, if a company issues a 5-year debenture worth ₹50,000 at an interest rate of 8%, the investor will receive ₹4,000 annually in interest. After 5 years, the company repays the ₹50,000 principal, bringing the total return to ₹70,000 over the period.
What Is A Bond?
A bond is a financial instrument used by companies or governments to raise funds, where they agree to pay regular interest and repay the principal at maturity. Bonds are often backed by collateral, offering lower risk to investors.
Bonds offer predictable returns through regular interest payments. For example, if an investor buys a ₹1,00,000 bond with a 7% annual interest rate for 10 years, they will receive ₹7,000 per year in interest. After 10 years, the issuer will repay the ₹1,00,000 principal, totaling ₹1,70,000 over the investment period.
Difference Between Shares, Debentures, and Bonds
The main difference between shares, debentures, and bonds is that shares represent ownership in a company, debentures are unsecured loans with fixed interest, and bonds are secured loans backed by collateral with a predetermined interest rate and repayment terms.
| Parameter | Shares | Debentures | Bonds |
| Nature of Investment | Represents ownership in a company | Unsecured loan to a company | Secured loan with collateral |
| Returns | Dividends and capital gains | Fixed interest payments | Fixed interest payments |
| Risk Level | High (depends on company performance) | Moderate (unsecured, but fixed returns) | Low (secured by collateral) |
| Maturity | No maturity date, can be held indefinitely | Specified term with repayment at maturity | Fixed term, principal repaid at maturity |
| Voting Rights | Shareholders may have voting rights | No voting rights | No voting rights |
Similarities Between Bonds and Debentures
The primary similarity between bonds and debentures is that both are debt instruments used by companies or governments to raise capital. Investors lend money to the issuer and, in return, receive regular interest payments and the principal amount upon maturity.
Other key similarities between bonds and debentures are as follows:
- Fixed Interest Payments: Both bonds and debentures offer fixed interest payments to investors over the term of the investment. The interest rate is predetermined, providing predictable returns regardless of the company’s or issuer’s financial performance.
- Repayment at Maturity: In both cases, the principal amount invested is returned to the investor at the end of the specified term. This maturity period can vary, but the repayment of the principal is guaranteed as per the terms of issuance.
- No Voting Rights: Investors in bonds and debentures do not gain ownership in the company, and therefore, they do not receive voting rights. Their role is limited to that of a lender, earning interest and receiving principal repayment.
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Difference Between Shares, Debentures And Bonds – Quick Summary
- The key distinction is that shares represent ownership in a company, giving shareholders potential dividends and capital appreciation. Debentures and bonds, however, are debt instruments where investors earn fixed interest and eventually receive principal repayment.
- Shares grant partial ownership in a company, allowing investors to benefit from the company’s growth through dividends and capital gains. Shareholders may also have voting rights depending on the share type.
- Debentures are long-term debt instruments companies use to raise capital. Investors earn fixed interest without collateral backing. The principal is repaid at maturity, offering predictable returns but without ownership rights.
- Bonds are secure debt instruments issued by companies or governments, offering fixed interest over time. Investors receive their principal back at maturity, making bonds lower-risk investments due to collateral backing.
- The major difference between shares, debentures, and bonds lies in risk and returns. Shares offer ownership, debentures provide unsecured loans, while bonds are secured loans with guaranteed interest payments and lower risk.
- The primary similarities between bonds and debentures are that they offer fixed interest payments, repayment of the principal at maturity, and no voting rights for investors. They are used to raise funds without giving ownership control.
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Difference Between Shares, Bonds And Debentures – FAQs
The difference is that shares represent ownership in a company, debentures are unsecured loans with fixed interest, and bonds are secured loans backed by collateral. Shares offer ownership rights, while debentures and bonds provide fixed returns without ownership.
Shares represent a portion of ownership in a company, entitling shareholders to a share of the company’s profits and potentially granting voting rights, depending on the type of shares held.
A debenture is a type of loan taken by companies to raise funds. Investors earn fixed interest, and the company repays the principal at maturity. Debentures are unsecured, meaning no collateral is required.
Bonds are debt instruments issued by companies or governments to raise capital. Investors receive fixed interest payments and get their principal back at maturity. Bonds are typically secured by collateral, reducing investment risk.
Any company, public or private, can issue debentures to raise capital. Government bodies and corporations can use debentures to fund projects, while offering fixed interest payments to investors.
The difference is that shares represent equity ownership in a company, giving voting rights and dividends. Debentures are loans providing fixed interest without ownership rights, and they must be repaid by the company at maturity.
The difference is that bonds are secured loans that provide fixed interest and repayment at maturity, while shares represent ownership in a company and offer potential dividends and voting rights, with higher risk due to market fluctuations.
Government bonds are secure debt instruments backed by the government, offering low-risk fixed interest. Debentures are typically issued by companies and are unsecured, meaning they carry slightly higher risk than government bonds.
A debenture is a type of bond, but unlike secured bonds, debentures are unsecured. While both offer fixed interest, debentures lack collateral, making them a riskier investment compared to secured bonds.
We hope that you are clear about the topic. But there is more to learn and explore when it comes to the stock market, commodity and hence we bring you the important topics and areas that you should know:
