When starting to invest your money, the most common topic is in which sector one should invest his money or in which sector should maintain our portfolio. The present world is full of investment opportunities so one can choose any of them and invest in them. But investing in Stocks and Debentures is one of the best ideas to make your money grow. The work of debentures and shares is quite similar. They both want to raise capital from the market. Perhaps if we compare both of them on the basis of their characteristics, then they are quite different. Here in this article, you will learn the fundamental difference between debentures and shares by which you can make the right decision for your investment.
In debenture, if any, funds are raised, it is considered a loan, but when investing in the share market, you are buying the company’s ownership. Although investing in both is worthwhile, before getting into the different characteristics, let’s take a brief on each of them.
What are Shares?
In the journey of difference between debentures and shares, first, let’s discuss what shares are? When the company wants to raise capital and funds, they issue shares in the market for the common public. Whenever a company needs to go public by issuing their shares for the first time then the company needs to follow some rules and regulations made by the stock market regulator SEBI. Once the shares are issued in the market, anyone can invest their money in that particular share.
In simple words, we can say that shares are part of any company’s ownership. And the person who holds the shares of any particular company then becomes the shareholder of that company. And whenever a company gains profit at that time, every shareholder has the right to receive a fixed amount of dividend.
However, for buying shares or debentures, it is compulsory to have stock market knowledge. If you don’t know how things work in the stock market, then investing in it can be riskier for you and increase the loss of loss, leaving you with an empty pocket. Hence, the risk can be minimized and earning higher returns can be easier if one joins a Stock Market Course In Delhi and gets proper guidance from the share market.
Two types of shares in the share market
- Equity Shares: As the most common shares are also considered, the other name of equity shares is ordinary shares. Owners get the voting right and receive the dividend amount at every fixed interval.
- Preference Shares: When a company declares its dissolution at that time, preference shares get the opportunity and priority of paying dividends first over the equity shareholders. The dividend amount is fixed, but the preference shareholders don’t have the right to vote in company essential decisions and meetings. Also, from the list of preference shareholders, there are convertible preference shareholders who can easily convert their holding into equity shares. They need to follow some guidelines made by SEBI (Security Board Exchange of India)
To buy shares, one must pay the price, called a share price. After spending the price, you will get the fixed dividend from that particular company. Although the whole profit gain by the company is announced at the end of the financial year, it means the longer you wait, the higher you get.
The share price varies on many factors, like the performance of the market, sectoral performance, the company’s performance as an individual.
What Are Debentures?
Here comes the second important topic in the journey of difference between debentures and shares: what are debentures? The debt tools are known as debentures. In the form of loans, they are issued by the companies to the common public. The amount of loan, we received from debentures is not secured at all.
Different Types of Categories of Debentures
Not only stocks, but there are also different types of debentures. Let’s have a look at them.
- Perpetual Debentures: These types of dentures don’t have maturity value. That’s why they are treated the same as equities.
- Convertible Debentures: Some companies permit to receive the maturity value, although, in simple words, we can say that these types of debentures can be easily converted into inequities.
- Non Convertible Debentures– Those debentures who did not receive the rights of conversion into shares are called non-convertible debentures.
- Redeemable Debentures: In the case of redeemable dentures fixed amount is paid at a certain amount of time
- Non-Redeemable Debentures: No need to pay back non-redeemable dentures; hence, only at the time of liquidation do they need to be paid off.
- First And Second Debentures: The debentures which are repaid before any other are first, and second debentures are repaid after that.
What is the Difference between Debentures and Shares?
Now, after understanding the meaning of debentures and shares. let’s look at the fundamental differences
| Nature | Shares | Debentures |
| Nature | Shares refers to the term of ownership of the company issued by the company | On the other hand, the term debenture is a debt instrument. |
| Holder | The person who holds any particular share of the company becomes a shareholder. | Although the person who owns the debentures are debenture holders. |
| The Return policy | Shareholders will receive the fixed amount of dividend the company gives. | On the other hand, the interest rate for debentures is fixed, and they return at the maturity date. |
| Security | The share market is quite risky in comparison to dentures. The price of a share depends on the market performance and fluctuation. | In the case of debentures, the loan amount is unsecured, but repayment is assured. |
| Status of Position | The shareholders enjoy part of the company’s ownership | Although debentures are treated as money lenders. |
| Risk Factor | While investing in the share market, the risk is high | Although the debentures are secured investments. |
| Voting Rights | Shareholders can vote in company meetings, which means they have voting rights | Although debentures don’t have voting rights. |
Conclusion
This article cleared the difference between shares and debentures based on nature, risk, and other factors. Although investing without knowing both might be risky, that’s why invest your money after doing good research. Although you can also join the best Stock Market Institute in Delhi, where you can learn about the fundamentals of the share market, it can also be helpful to make you an expert in the share market.