In the immediate times, investing in shares and debentures has become a good medium of business. People from any section of the society, caste and religion, invest their hard-earned money with the aim and expectation that they will get good interest in return. On the one hand, where the share is the capital of a company, on the same, the debenture comes out as a long-term investment. In this, the company benefits the investors at a fixed rate. In this article, we going to know details about these two.
What is Share?
The smallest part of a company is called a share and the share is brought for sale in the open market. And because of share, the capital of a company is increased. The price at which people get this share is called the share price. This share represents the shareholder’s share in the ownership of the company. Shares can usually be transferred and exist in different numbers for a company. Read stock market information here.
Type of Share
The stock is usually divided into two main parts. A brief description of both is given below,
Equity Shares: The kind of shares in which dividend rates are not fixed and under which the company has voting rights in AGM, such shares are called equity shares. Such shares are irredeemable. Shares are repaid during the wind up of the company after all liabilities have been exhausted. Equity shares give the facility to its shareholders that the shareholder can share his profit in the company.
Preference share: There is no voting right in such a share. Under this, the dividend remains completely fixed. When a company plans to sell its shares directly for the first time, then this stock comes first in the primary market. From here, share trading starts in the secondary market. They are redeemable
What is Debenture?
Debentures are broadly a long-term debt instrument. If a company needs more funds to spread itself, and that company does not even want to increase its shareholders, then it issues debentures. Under which any common person can avail a fixed interest rate by investing money in the company for a fixed time. Debentures are issued to people by the same process by which a company issues shares. A debenture is issued by the common seal of a company. Following are some of the salient features of the debenture,
- A debenture holder is a creditor of a company who gets a profit at a fixed interest rate.
- Debenture holders do not require any voting rights.
- Any debenture can also be Secure or Insurer.
- The interest received under the debenture depends on the total profit of the company. Therefore, you can get the benefit of tax savings in this instrument.
- The interest is paid on the debenture even after the loss of the company.
There are mainly six types of debentures:
- Secured debenture
- Insured debenture
- Convertible debenture
- Nonconvertible debentures
- Registered debenture
- Bearer debenture
Difference Between Shares and Debentures
There are some main differences between shares and debentures, which are being written below.
Status: Share is the capital of a company but debenture is the debt of a company. Hence a shareholder is a part of a company, whereas a debenture holder is not a part of the company. It is also known from the debenture that the company is not in any debt. Read here what is the difference between a partner shareholder and a stakeholder.
Return: The dividend of a share depends on the immediate profit of the company, but in the debenture, the investor receives a different interest depending on whether the company is in profit or in loss.
REPAYMENT: Redeemable preference shares cannot be received without any legal process, but the debenture amount is handed over to the debenture holder at the time of its expiry date, after completion of a specified time.
Form of income: A shareholder in a share receives dividend as profit, while in debenture, the investor receives interest.
Security: The share holder does not have any charge on the assets of the company, whereas the debenture holder is charged on all the assets of a company or on a certain asset. No security charges are issued for shares, but security charges are issued for debentures.
Therefore, both these mediums are good means of investment for business.