Investment is a very important thing that plays an important part in everyone’s life. There are various types of investing methods in which you can easily invest. These options include public provident fund (PPF), mutual funds, stock markets like NYSE: ASH at https://www.webull.com/quote/nyse-ash, post office savings, gold bonds like sovereign gold bond and digital gold, real estate investment, etc. Public provident fund is most common among normal people as they are not so aware of different government funds and bonds.
What are bonds and debentures?
When a company starts up, it initially raises funds for it in two ways, one is equity and other is debts. In equity, investors buy ownership in the company by investing in it but in debts, the company takes loans from the public in two ways, bonds, and debentures. Although many people think that bonds and debentures are the same but there is much difference between the two.
Difference Between bonds and debentures
There are some difference between bonds and debentures and these difference are-
- Definition- A bond is a financial instrument showing the indebtedness of the issuing body towards its holders. But debenture is a debt instrument used to raise long term finance.
- Collateral- Investment bonds are generally secured by collateral, it means there are some securities given in return of bond and when the bondholder doesn’t get its money, he can sell the security and get his amount. But debentures can be secured or unsecured.
- Interest rates- The bondholders get a low rate of interest whereas debenture holders get a high rate of interest.
- Issued by- The bonds are owned by government agencies, financial institutions, corporations, etc. and so it’s interest rate is low whereas debentures are issued by public companies and so a debenture holder gets a high rate of interest.
- Payment- In investment bonds, you get accrued payment but you can get only periodical payments in case of debentures.
What are the types of bonds?
There are mainly four types of bonds.
- Floating rate bonds- These are the types of bonds in which the interest rates change every year.
- Fixed-rate bonds- In this, the rate of interest remains fixed and doesn’t fluctuate every year.
- Inflation index bonds- These types of investment bonds are those in which the rate of interest varies with inflation and deflation in the market.
These bonds are two types, one in which the company can redeem the bond anytime and is known as bond with call option but in another type, the bond can be redeemed only when the date expires which is known as bond with a put option. You can do stock trading from margin account.
Disclaimer: The analysis information is for reference only and does not constitute an investment recommendation.