What are Bonds and Debentures

 

Bonds and debentures both are the fixed income securities providing debt instruments issued by companies and government, however bonds are generally secured by Collateral with competitively lower interest rates and debentures are the debt instruments for raising long term finance and are generally issued by public companies as against government and companies in bonds.

Similarities:

1. Both are fixed income securities used by org to raise the capital.
2. Taken as loan from the public.
3. Interest can be issued annually or Cumulative.

Differences:

1. Bonds are more secured than Debentures because company put collateral as security.
2. Bonds are less risky than Debentures and offered less interest rates also.
3. Debentures are more risky and offered high interest rates.
4. During liquidation of organization , Bond holders are given priority over Debenture holders.
5. Bonds cannot be converted into shares but in case of debentures they can be converted into shares as per their categories like Non convertible, Partially convertible and fully convertible Debentures.

P.S : If you are conservative investor (Less Risk) then you should go for Bonds as they are less risky and are secured than Debentures.