Equity AND Debentures

Equity represents ownership in a company, generally through shares or stock.

An equity holder is a shareholder or stockholder because the person owns a stake in the company.

Common shareholders usually have voting rights on important company matters.

Common stock dividends are not guaranteed and depend on factors such as profitability and dividend policy.

Preferred shareholders generally have a higher claim on company assets than common shareholders, though debt holders rank ahead of them.

Preferred shareholders generally have preferential rights to dividends before common shareholders.

An IPO is the first public offering of a company‘s shares to investors.

An IPO allows a company to raise capital by offering shares to public investors.

Investment banks can assist with the number of shares, pricing process and facilitation of the public offering.

In the secondary market, investors buy and sell existing shares among themselves; the company generally does not receive the transaction proceeds.

Capital appreciation occurs when the market price of an equity investment increases.

Listed equities can generally be bought and sold in secondary markets, providing liquidity to investors.

Economic downturns and other factors such as interest rates, geopolitical events and market sentiment can cause equity prices to decline.

Issuing additional shares can reduce existing shareholders‘ percentage ownership and potentially their voting power.

Equity represents ownership, whereas debt represents a creditor relationship with the issuer.

A debenture is a debt instrument issued to raise capital. It represents borrowing by the issuer from investors.

Buying a debenture is effectively lending money to the issuing entity in exchange for interest and repayment of principal.

Secured debentures are backed by specific assets such as real estate or machinery.

Unsecured debentures are not backed by specific physical assets and depend primarily on the issuer‘s creditworthiness.

Convertible debentures allow holders to convert their debt investment into company shares at a predetermined conversion rate or terms.

Non-convertible debentures cannot be converted into equity shares and generally provide fixed-income returns.

Redeemable debentures are repaid by the issuer at a specified time or over a specified period.

Irredeemable debentures are also called perpetual debentures because they do not have a fixed maturity date.

The coupon rate is the interest rate used to calculate periodic interest payments on a debenture.

Annual interest is calculated as Face Value × Coupon Rate, so ₹1,000 × 8% = ₹80.

The maturity date is the date when the debenture principal or face value is due to be repaid.

A callable debenture gives the issuer the right to redeem the debenture before its scheduled maturity, subject to its terms.

A debenture trust deed sets out important terms such as interest, redemption and security arrangements.

Credit risk is the risk that the issuer may default on interest or principal payments.

When market interest rates rise, existing fixed-rate debt securities can become less attractive, which can reduce their market value.