17 Jun, 2025
3 mins read
When a company needs funds, it has two primary options: issuing shares or raising debt through debentures. For investors, both represent avenues to earn returns - but they are fundamentally different in nature, rights, and risks. In this blog, let’s explore what shares and debentures are, their differences, and which may be more suitable based on your financial goals.
Shares represent ownership in a company. When you buy a share, you become a part-owner or shareholder of the company. You are entitled to a portion of the company's profits, typically in the form of dividends, and can also benefit from the rise in share price.
Ownership: Shares give you a stake in the company.
Voting Rights: Equity shareholders have voting rights on major company decisions.
Dividends: Not fixed and paid based on profitability and board decisions.
Capital Appreciation: Shareholders benefit if the company performs well and share prices rise.
Risk: High, In case the company suffers losses or liquidates, shareholders are the last to be paid.
Debentures are debt instruments issued by companies to borrow money from the public. Investors who purchase debentures are essentially lenders, not owners. In return, they receive regular interest payments, and the principal is repaid after a fixed term.
Creditor Status: Debenture holders are creditors, not owners.
Fixed Interest: Paid periodically, regardless of company profits.
No Voting Rights: Debenture holders don’t influence company decisions.
Lower Risk: In case of liquidation, they are paid before shareholders.
Tenure: Debentures are usually issued for a fixed period.
Here’s a side-by-side comparison to help clarify:
|
Basis |
Shares |
Debentures |
|---|---|---|
|
Ownership |
Represent ownership in the company |
Represent a loan to the company |
|
Holder Status |
Shareholders (owners) |
Debenture holders (creditors) |
|
Voting Rights |
Usually have voting rights |
No voting rights |
|
Return Type |
Dividends (not fixed or guaranteed) |
Fixed interest |
|
Risk |
Higher (linked to business performance) |
Lower (fixed income and priority in repayment) |
|
Repayment |
No repayment unless shares are bought back |
Principal repaid after a specific term |
|
Convertibility |
Non-convertible by default |
Some may be convertible into shares |
|
Security |
Not secured against assets |
Can be secured or unsecured |
|
Priority in Liquidation |
Last to be paid |
Priority over shareholders |
It depends on your investment goals and risk appetite:
If you're looking for ownership, potential for high returns, and can handle market risk, shares may suit you better.
If you prefer fixed income and lower risk, debentures are a safer choice.
Many seasoned investors diversify by holding both, using shares for growth and debentures for stability.
While both shares and debentures offer ways to invest in a company, they serve very different purposes. Shares bring higher potential returns along with higher risk, while debentures provide fixed income with lower risk. Understanding these instruments can help you build a well-balanced investment portfolio suited to your financial goals.
Shares represent ownership in a company, whereas debentures are a form of loan given to the company by investors.
Shareholders have voting rights and can influence company decisions. Debenture holders, being creditors, do not have such rights.
Yes, debentures are generally considered safer because they offer fixed interest and are repaid before shareholders in case of liquidation. However, they also offer lower returns compared to shares.
Calculate your Net P&L after deducting all the charges like Tax, Brokerage, etc.
Find your required margin.
Calculate the average price you paid for a stock and determine your total cost.
Estimate your investment growth. Calculate potential returns on one-time investments.
Forecast your investment returns. Understand potential growth with regular contributions.
You have successfully submitted your partnership request form. You will be hearing us soon!
Back
