Debentures Vs. Stocks And Bonds


A debenture is an unsecured loan that you offer to a business. The company gives no guarantee for the debenture, but pays a higher interest rate to its creditors. In the event of bankruptcy or financial difficulty, the debenture holders are paid later than the bondholders. Debentures are different from stocks and bonds, although all three are types of investment. Let us discuss different types of investment options for small investors and entrepreneurs.

Debentures and actions:

When you buy shares, you become one of the owners of the company. Your fortune goes up and down with that of the company. If the company's stock rises, your investment pays a high dividend, but if stocks go down in value, investments pay little. The higher the risk you take, the higher the rewards you get.

Debentures are safer than stocks, in the sense that you are guaranteed payments with high interest rates. You are paid interest on the money you lend to the company until the expiration period, after which everything you have invested in the company is paid back to you. The interest is the profit you make from the debentures. While the shares are aimed at those who like to play in the field and are willing to take risks for high returns, the debentures are for people who want a safe and secure income.

Debentures and obligations:

Debentures and bonds are similar except for one difference: bonds are safer than debentures. In either case, you receive a guaranteed interest that does not change in value regardless of the company's fortune. However, bonds are safer than debentures, but bear a lower interest rate. The company provides a guarantee for the loan. In addition, in the event of a Liquidation, the Bondholders will be redeemed before the Debentureholders.

A debenture is safer than an action, but not as safe as an obligation. In case of bankruptcy, you have no guarantee to ask the company. To compensate for this, companies pay higher interest rates to debenture holders.

All investments, including bonds and debentures, carry an element of risk. If you are not sure of the investment options that best suit your business, you can consult a small business consultant who will guide you to the best investment options that you offer. to you. Investing wisely today can pay big dividends tomorrow.

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