Shares and Debentures are two popular ways companies raise money. But they are very different in how they work, what they offer, and how they treat you as an investor.
What Are Shares?
Shares are units of ownership in a company.
When you buy shares, you become a part-owner of the company.
- You get dividends (a part of the profits) if the company chooses to share them.
- You may also earn by selling your shares at a higher price.
- But you can also lose money if the share price drops.
Example:
If you buy 100 shares of Tata Motors, you own a small part of Tata Motors.
What Are Debentures?
Debentures are a type of loan you give to a company.
You don’t own the company—you are just a lender.
- You earn fixed interest regularly (even if the company makes no profit).
- At the end of the term, you get your money back.
- It’s generally safer than shares, but with lower returns.
Example:
If you buy ₹1 lakh worth of debentures from Infosys at 8% interest, Infosys will pay you ₹8,000 every year, and return ₹1 lakh after the set period.
Key Differences Between Shares and Debentures
| Feature | Shares | Debentures |
|---|---|---|
| What You Are | Owner | Lender |
| Returns | Dividends (not fixed) + growth | Fixed interest |
| Risk | High (depends on profits) | Lower (guaranteed interest) |
| Control/Voting | Yes, shareholders can vote | No voting rights |
| Issued By | Equity or preference shares | Companies or governments |
| Tax Treatment | Capital gains tax on profits | Interest is taxable as income |
| Security | Unsecured (usually) | Often secured by company assets |
Which One Is Right for You?
- Choose shares if you want higher growth and can take some risk.
- Choose debentures if you prefer fixed income with lower risk.
In Short
- Shares = Ownership + Profit Sharing + Risk
- Debentures = Lending + Fixed Returns + Safety
