Understanding The Difference Between Debentures And Stocks And Bonds

A debenture is an unsecured loan you offer to a company. The company offers no guarantee of the bond loan, but pay a higher interest rate to its creditors. In the event of bankruptcy or financial problems, debenture holders are paid later than bondholders. Bonds are different from stocks and bonds, although all three are types of investments. Below are descriptions of the various types of investment opportunities for small investors and entrepreneurs.

Bonds and stocks

When you buy shares, you are one of the owners of the company. Your fortunes rise and fall with that of the company. If stocks of the company soar in value, your investment pays high dividends but whose stocks declined in value, investments are low paid. The higher the risk you take, the higher the reward you get.

Bonds are safer than equities, in the sense that you are guaranteed payment with high interest rates. The company pays you interest on the money you borrow it until maturity, after what you invested in the company is paid back to you. Interest is the profit you make from debentures. While stocks are for those who like to take risks to achieve high yield bonds, are for people who want a safe and secure income.

Bonds and debentures

Bonds and debentures are similar, but bonds are safer than bonds. In the case of both, the company pays you a guaranteed interest rate does not change in value regardless fortunes of the company. But bonds are safer than bonds, and carry a lower interest rate. In the case of bonds, an enterprise security for the loan. Moreover, in the event of liquidation, bondholders would be paid back before the holders of bonds.

A bond is safer than a stock, but not as safe as a bond. In the event of bankruptcy, you have no security you can claim from the company. To compensate for this, companies pay higher interest to holders of bonds.

Additional Help

All investments, including stocks, bonds and debentures bear an element of risk. If you are unsure about investment opportunities that are best for your business, you can ask a small business consultant who will guide you to the best investment opportunities available to you. Investing wisely today can pay big dividends tomorrow. Do as much research as possible about the company you are investing in, whether this investment is in shares, bonds or debentures. Research is a sure fire way to reduce risk and increase profits.