Differences Between Shares And Debentures

Difference between Shares and debentures

The most common form of Shares in stock market are Equity shares. There are some less common shares like preference shares and rights share. Whenever a company wants more capital for expansion or new projects they will accumulate the money by selling shares to the public. Otherwise they can sell debentures.

The important difference between shares and debentures.

1. For debuntures the company should pay the interest. Interest is mandatory for debentures. For shares dividend is decided by the company depending on the profit that makes. If there is no or less profit the company may not give dividend for that year.

2. For debuntures the interest rate is fixed and will not increase or decrease. Dividend for Equity shares will vary depending on the performance of the company.

3. The amount invested in the debentures should be returned within specified number of years. The company has no obiligation to return the money invested in shares. You have to sell your shares in the secondary market only.

4. Debentures are more secure than share investment.

What is the difference between debentures and Fixed Deposits.

You can invest in fixed deposits any time you want. You can buy debuntures only when it is offered by the company. Then if it is listed in stock market you can buy it in prevailing market rate. You can sell debentures at any time in the secondary market. This facility is not available in Fixed Deposits.

No comments: