{"id":5209,"date":"2021-10-20T12:00:12","date_gmt":"2021-10-20T06:30:12","guid":{"rendered":"https:\/\/www.tickertape.in\/blog\/?p=5209"},"modified":"2022-05-24T19:06:24","modified_gmt":"2022-05-24T13:36:24","slug":"difference-between-shares-and-debentures","status":"publish","type":"post","link":"https:\/\/www.tickertape.in\/blog\/difference-between-shares-and-debentures\/","title":{"rendered":"Difference Between Shares and Debentures &#8211; All You Need To Know"},"content":{"rendered":"\n<p>When we talk about companies raising funds, the most popular method is to issue shares. Investors buy the shares and become <a href=\"https:\/\/www.tickertape.in\/blog\/shareholders\/\">shareholders<\/a> of the company. That makes them part-owners in the company. Debentures are another way through which companies raise money, but here, the investors are only creditors to the company. Debentures are long-term debt instruments that companies issue for which investors are paid back with regular interest.&nbsp;<\/p>\n\n\n\n<p>Some debentures can be converted into <a href=\"https:\/\/www.tickertape.in\/blog\/ordinary-shares\/\">ordinary shares<\/a> while the reverse is not possible. In this write-up, we will discuss the major difference between shares and debentures.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_66_1 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title \" >Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.tickertape.in\/blog\/difference-between-shares-and-debentures\/#How-do-shares-work\" title=\"How do shares work?\">How do shares work?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.tickertape.in\/blog\/difference-between-shares-and-debentures\/#How-do-debentures-work\" title=\"How do debentures work?\">How do debentures work?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.tickertape.in\/blog\/difference-between-shares-and-debentures\/#Types-of-debentures\" title=\"Types of debentures&nbsp;\">Types of debentures&nbsp;<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.tickertape.in\/blog\/difference-between-shares-and-debentures\/#Secured-debentures-and-unsecured-debentures\" title=\"Secured debentures and unsecured debentures\">Secured debentures and unsecured debentures<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/www.tickertape.in\/blog\/difference-between-shares-and-debentures\/#Redeemable-debentures-and-non-redeemable-debentures\" title=\"Redeemable debentures and non-redeemable debentures\">Redeemable debentures and non-redeemable debentures<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/www.tickertape.in\/blog\/difference-between-shares-and-debentures\/#Convertible-and-non-convertible-debentures\" title=\"Convertible and non-convertible debentures\">Convertible and non-convertible debentures<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/www.tickertape.in\/blog\/difference-between-shares-and-debentures\/#Who-can-invest-in-shares-and-debentures\" title=\"Who can invest in shares and debentures?&nbsp;\">Who can invest in shares and debentures?&nbsp;<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/www.tickertape.in\/blog\/difference-between-shares-and-debentures\/#How-to-invest-in-shares-and-debentures\" title=\"How to invest in shares and debentures?\">How to invest in shares and debentures?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/www.tickertape.in\/blog\/difference-between-shares-and-debentures\/#Major-differences-between-shares-and-debentures\" title=\"Major differences between shares and debentures&nbsp;\">Major differences between shares and debentures&nbsp;<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/www.tickertape.in\/blog\/difference-between-shares-and-debentures\/#Conclusion\" title=\"Conclusion&nbsp;\">Conclusion&nbsp;<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\" id=\"how\"><span class=\"ez-toc-section\" id=\"How-do-shares-work\"><\/span><strong>How do shares work?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><a href=\"https:\/\/www.tickertape.in\/blog\/shares\/?utm_source=blog&amp;utm_medium=article\">Shares<\/a> are the most common financing option to raise fresh funds. By purchasing shares, you become a part-owner in the company, equivalent to your shareholding. Some shares also give you voting rights, and you also enjoy a part of the company&#8217;s profits in the form of a <a href=\"https:\/\/www.tickertape.in\/blog\/cash-dividend-vs-stock-dividend\/\">dividend<\/a>.&nbsp;<\/p>\n\n\n\n<p>Depending on the benefits that come along, there are two main <a href=\"https:\/\/www.tickertape.in\/blog\/shares\/\">types of shares<\/a> &#8211; <a href=\"https:\/\/www.tickertape.in\/blog\/what-are-equity-shares-meaning-types-features-limitations-and-more\/?utm_source=blog&amp;utm_medium=article\">equity shares<\/a> or <a href=\"https:\/\/www.tickertape.in\/blog\/ordinary-shares\/?utm_source=blog&amp;utm_medium=article\">ordinary shares<\/a>, and preferential shares.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"work\"><span class=\"ez-toc-section\" id=\"How-do-debentures-work\"><\/span><strong>How do debentures work?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Debentures are a tool to <a href=\"https:\/\/www.tickertape.in\/blog\/how-to-raise-debt-efficiently-for-your-business\/\">raise debt<\/a>, and companies use this debt to <a href=\"https:\/\/www.tickertape.in\/blog\/why-should-you-prioritise-investing\/\">invest<\/a> in the business and earn profits. They are basically a contract drawn up between an investor and the company, where the company gets funds for business and the investor or lender is assured a sum over the assets of the company.<\/p>\n\n\n\n<p>Unlike shares, debentures are borrowed funds where the debenture holder becomes a creditor for the company. Debenture holders do not get ownership in the company, therefore, they do not get any voting rights as well.&nbsp;<\/p>\n\n\n\n<p>However, the companies pay debenture holders a certain rate of interest. The <a href=\"https:\/\/www.tickertape.in\/blog\/flat-interest-rate-vs-reducing-balance-interest-rate\/?utm_source=blog&amp;utm_medium=article\">rate of interest<\/a> is pre-decided and the default risk is with the investor. Therefore, you need to research well before lending your money. There are credit rating agencies that help check the credibility of a borrowing company and release reports that investors may access before deciding to buy debentures.&nbsp;<\/p>\n\n\n\n<p>Just like shares, there are a few types of debentures that vary based on their functionality and redeemability. Let\u2019s take a quick look.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"types\"><span class=\"ez-toc-section\" id=\"Types-of-debentures\"><\/span><strong>Types of debentures&nbsp;<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Secured-debentures-and-unsecured-debentures\"><\/span><strong>Secured debentures and unsecured debentures<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>In case of insolvency or bankruptcy, the secured debenture holders will be the first ones to receive their principal amounts from the asset sale.<strong> <\/strong>In this case, the debenture holders do not have rights over any assets.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Redeemable-debentures-and-non-redeemable-debentures\"><\/span><strong>Redeemable debentures and non-redeemable debentures<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Under redeemable debentures, the investors can redeem the principal amount within a set time frame. Whereas, non-redeemable debenture holders only earn interest on the capital for the rest of their life. The capital is paid back only after liquidation.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Convertible-and-non-convertible-debentures\"><\/span><strong>Convertible and non-convertible debentures<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Convertible debentures are debt instruments that can be converted into ordinary shares within pre-decided time by the company. On the other hand, non-convertible debentures do not have this feature.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"who\"><span class=\"ez-toc-section\" id=\"Who-can-invest-in-shares-and-debentures\"><\/span><strong>Who can invest in shares and debentures?&nbsp;<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>As we know, the <a href=\"https:\/\/www.tickertape.in\/blog\/how-to-invest-in-shares\/\">stock market<\/a> is very volatile. While <a href=\"https:\/\/www.tickertape.in\/blog\/what-is-equity\/\">equity<\/a> shares have a high potential for profits, they are considered a risky <a href=\"https:\/\/www.tickertape.in\/blog\/financial-instruments\/\">financial instrument<\/a>. Thus, investors need to have an appropriate high-risk appetite to <a href=\"https:\/\/www.tickertape.in\/blog\/how-to-invest-in-the-stock-market-beginners-guide\/\">invest in stocks<\/a>. Also, <a href=\"https:\/\/www.tickertape.in\/blog\/what-are-equity-shares-meaning-types-features-limitations-and-more\/\">equity shares<\/a> do not guarantee any fixed income. Should investors be looking for fixed income, then debentures may be a better financial instrument that one may consider adding to the portfolio.<\/p>\n\n\n\n<p>Investors who have a low risk-taking capacity may also explore investing their capital in debentures issued by quality companies. Investors earn a fixed return on their capital as debentures offer interest on the units.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"invest\"><span class=\"ez-toc-section\" id=\"How-to-invest-in-shares-and-debentures\"><\/span><strong>How to invest in shares and debentures?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>To invest in shares and debentures, you would need to enlist the services of a good broker who can keep your financial holdings safe and secure. It is mandatory to have a Demat and <a href=\"https:\/\/www.tickertape.in\/blog\/what-is-a-trading-account\/\">trading account<\/a> to invest in shares and debentures. Note that both these instruments are traded in the primary and secondary markets.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"major\"><span class=\"ez-toc-section\" id=\"Major-differences-between-shares-and-debentures\"><\/span><strong>Major differences between shares and debentures&nbsp;<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<figure class=\"wp-block-table is-style-stripes\"><table><tbody><tr><td><strong>Basis Of Comparison&nbsp;<\/strong><\/td><td><strong>Shares&nbsp;<\/strong><\/td><td><strong>Debentures<\/strong><\/td><\/tr><tr><td><strong>Meaning<\/strong><\/td><td>Shares are part of the capital of the company and issuing shares helps increase market capitalization.<\/td><td>Debentures are borrowings and the company adds debt to the books.&nbsp;<\/td><\/tr><tr><td><strong>Nature Of Ownership\/Capital&nbsp;<\/strong><\/td><td>Investors get ownership in the company when they buy shares. Shares are issued from the capital of the company.<\/td><td>It is borrowed funds for the company. Investors become creditors or lenders who loan the money to the company.<\/td><\/tr><tr><td><strong>Role In The Company<\/strong><\/td><td>Shareholders own a part of the company.&nbsp;<\/td><td>Debenture holders are just debtors for a company.&nbsp;<\/td><\/tr><tr><td><strong>Types&nbsp;<\/strong><\/td><td>Equity shares are of two types: Ordinary and preferential shares.<\/td><td>Debentures are categorized into: Secured and unsecured debentures, convertible and non-convertible debentures, and registered and bearer debentures.&nbsp;&nbsp;<\/td><\/tr><tr><td><strong>Returns<\/strong><\/td><td>When a company earns profit, it distributes dividends to the shareholder. Those dividends are the source of income.<\/td><td>Debenture offers interest rates on their units. Therefore, debenture holders enjoy fixed interest payments.&nbsp;&nbsp;&nbsp;<\/td><\/tr><tr><td><strong>In case of solvency<\/strong><\/td><td>While preferential shareholders have the right to receive funds in case of solvency, common shareholders are not prioritized.<\/td><td>They act as creditors to the company. Therefore, they are given first preference in case of asset liquidation.&nbsp;<\/td><\/tr><tr><td><strong>Convertible&nbsp;<\/strong><\/td><td>You can not convert shares into debentures.<\/td><td>Convertible debentures are a type that can be converted into shares within a set time frame.&nbsp;&nbsp;<\/td><\/tr><tr><td><strong>Voting rights<\/strong><\/td><td>Shareholders get voting rights in the company.<\/td><td>Debenture holders do not hold any voting rights in the company.<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span><strong>Conclusion&nbsp;<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Shares and debentures, though are ways for a company to raise funds, are two very diverse <a href=\"https:\/\/www.tickertape.in\/blog\/financial-instruments\/?utm_source=blog&amp;utm_medium=article\">financial instruments<\/a>. Their inherent characteristics of equity and debt, respectively, make it easier for the investors to choose between them.&nbsp;<\/p>\n\n\n\n<p>Generally, debt instruments subdue the risk exposure from equity. Therefore, if investors have a heavy risk appetite, then they may consider equity shares, whereas, if they do not want to put their capital at risk, they could explore earning fixed interest from debentures. A mix of both in the portfolio may provide good <a href=\"https:\/\/www.tickertape.in\/blog\/mitigating-portfolio-risk-through-diversification\/\">diversification<\/a> and a balance of risk-reward. Speak with your financial advisor before investing.<\/p>\n\n\n\n<p>Research before you start investing. If you are still waiting for the right time to invest, start investing this Diwali. In India, <a href=\"https:\/\/www.tickertape.in\/blog\/muhurat-trading-2021\/?utm_source=blog&amp;utm_medium=article&amp;utm_campaign=mtrad\">Muhurat Trading<\/a> is considered to be an auspicious time to start investing. But make sure not to invest blindly, research and screen the stocks on <a href=\"https:\/\/www.tickertape.in\/?utm_source=blog&amp;utm_medium=article\" target=\"_blank\" rel=\"noreferrer noopener\">Tickertape<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Want to understand the difference between shares and debentures? Click here to know what are shares &#038; debentures, the key differences &#038; how to invest in them.<\/p>\n","protected":false},"author":54,"featured_media":4912,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"_lmt_disableupdate":"no","_lmt_disable":"no","footnotes":""},"categories":[8,1749],"tags":[888,887],"acf":[],"modified_by":"Aradhana Gotur","jetpack_featured_media_url":"https:\/\/www.tickertape.in\/blog\/wp-content\/uploads\/2021\/10\/13.png?wsr","_links":{"self":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/5209"}],"collection":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/users\/54"}],"replies":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/comments?post=5209"}],"version-history":[{"count":2,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/5209\/revisions"}],"predecessor-version":[{"id":8724,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/5209\/revisions\/8724"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/media\/4912"}],"wp:attachment":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/media?parent=5209"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/categories?post=5209"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/tags?post=5209"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}