The financial market is filled with varied types of products for investment. As an investor, it is important for you to judiciously choose only those products that match your needs. A sound knowledge of these products enables you to choose the various products better & ensures you make mature investments. Let us begin with comprehending the difference between the two broad classifications of financial products: Debt and Equity.
There are various parameters that explain the performance & returns from Debt & Equity products. The below chart explains the basic difference between the two.
Debt
Equity
There are various parameters that explain the performance & returns from Debt & Equity products. The below chart explains the basic difference between the two.
Debt
- Debt means obligation.
- Debt holders are like Money lenders.
- Raising Capital using Debt is a burden to the Company as they have to pay the interest monthly.
- Coupon or Monthly Interest is earned by the investors.
- Investment in Debt is less riskier compared to Equity.
- Returns are periodic and almost fixed.
Equity
- Equity means ownership.
- Everyone who owns the Equity is part owner of that company. He/She can also influence the decision.
- Raising Capital using Equity is that the Company who issues shares need not pay any money to the share holders.
- Investor only earns when Company issues dividends (it happens when the Company wants to share the profit to their shareholders).
- Investment in Equity is risky compared to Debt.
- Returns are only when selling of share happens or dividends are issued. Returns are not fixed.
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