Asked in Investing and Financial MarketsBonds and TreasuriesMutual FundsStocksDebentures
What are shares and debentures?
November 07, 2009 6:04AM
A debenture is an unsecured loan you offer to a company. The
company does not give any collateral for the debenture, but pays a
higher rate of interest to its creditors. In case of bankruptcy or
financial difficulties, the debenture holders are paid later than
bondholders. Debentures are different from stocks and bonds,
although all three are types of investment. Below are descriptions
of the different types of investment options for small investors
Debentures and Shares
When you buy shares, you become one of the owners of the company. Your fortunes rise and fall with that of the company. If the stocks of the company soar in value, your investment pays off high dividends, but if the shares decrease in value, the investments are low paying. The higher the risk you take, the higher the rewards you get.
Debentures are more secure than shares, in the sense that you are guaranteed payments with high interest rates. The company pays you interest on the money you lend it until the maturity period, after which, whatever you invested in the company is paid back to you. The interest is the profit you make from debentures. While shares are for those who like to take risks for the sake of high returns, debentures are for people who want a safe and secure income.