What is the Key Difference Between Shares, Bonds, and Debentures?
There are various investment instruments you can choose to invest in. Diversifying your portfolio can help you take the maximum advantage of your investment and minimize the risks of capital loss. Also, it can help achieve your different goals in your life including short-term and long-term financial goals.
Let us learn about Shares, Bonds, and Debentures to understand better the difference between the three instruments.
Shares
the term share in the stock market is the Share Certificate that refers to ownership in a company. The most popular type of share is a certificate of ownership. It is one equal portion of the company's capital stock. Stockholders of common shares are allowed certain rights that are not available to bondholders. They are allowed the right to vote and are entitled to dividends. Also, shareholders are the bearer of any loss the company may face. You can buy shares online or through a broker, or a brokerage firm.
You can buy shares online through SEBI registered members, stock exchange brokers, and other sources. You need to have a dedicated Demat Account with a Depository Participant (DP) that can either be registered with Central Securities Depositories Limited (CSDL) or National Securities Depository Limited (NSDL), or both.
Debentures
Debentures unlike bonds are also debt security where you earn interest on your investment and get back the principal at the end of the maturity date. It is considered a relatively secure instrument for investment. You have assured payment with a high rate of interest. In debenture, investors receive interest on the lent money until maturity, and at the end date of maturity, the company pays back your invested money. Debentures are for risk-averse investors. It is a source for organizations looking to raise short-term and long-term capital. It is known to offer higher interest.
Bonds
It is a debt security and an instrument used by an issuer to raise money for various purposes. A bondholder gets a fixed percentage as a periodic income and return of capital at a specified period. Bonds are classified into various types based on their features. Every bond type has its own pros and cons.
A bondholder lends money to the bond issuers and the bond issuer in return promises to pay fixed coupon payment at predetermined intervals along with the repayment of the principal against the debt from the investors (bondholders). Investment in government bonds has a sovereign guarantee that makes your capital completely safe. The coupon rate varies depending on tenure, amount invested, and credit rating. Bonds are generally issued by banks, corporations, governments, and other entities. A bondholder is eligible for the returns irrespective of the company's financial condition.
You can buy bonds online securely using online platforms like bondsindia.com and others. The various instrument in the market may confuse you. Since every investment option carries risk, it is necessary to do proper analysis and seek expert advice if required. Experts in India advise investors to stay responsible. Make smart decisions while investing in bonds and other investment avenues as your decision taken in haste can result in disappointment.
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