Find out more about debentures

Find out more about debentures, what they are, what the term means, and what is the difference between shares and debentures?

In the world of investments there are many options, and each of them has its own risks and gains. Being a good investor is what everyone wants, but this is only possible when we study.

Knowing about debentures can open up another option in your life, understanding what they are and how they work can change your view of investing.

Without further ado, find out more about debentures and choose your investment carefully.

What are debentures?

Firstly, we need to understand that debentures are debt securities issued only by publicly traded companies on the stock exchange.

They are a type of fixed income investment, thus offering future interest. This interest is calculated based on the maturity date, on the chosen date the investor receives the amount invested.

As well as the reported income, that is, the amount invested added to the income. As a comparison, debentures look like a public or private security.

However, they need a clear destination. Therefore, this is common for companies, especially when they want to increase business. Just like paying a debt.

When you acquire the debenture, you automatically become a creditor of the company. To invest, you need to look for a bank or investment broker.

Compared to other fixed income investments, debentures tend to be attractive. Which explains the increase in demand.

Difference between shares and debentures

Firstly, even though shares are considered securities issued by companies just like debentures, they differ in something.

Debentures are debt securities, whereas shares are a fraction of a company's capital. When you invest in a share, you become a partner in the company, when in debentures, you become a creditor.

This completely changes your view on investing, firstly, if the company makes a profit, whoever invested in shares will see their investment increase in value.

However, if the company makes a loss, its shares will devalue in the same proportion. Debentures are different, with previously fixed values, nothing changes your investment.

Therefore, as shares change according to market trends, they are considerable variable income investments.

Finally, another difference is time, while debentures have an established term, shares keep them for as long as you wish.

What are the advantages and disadvantages of debentures?

Debentures have a higher yield when compared to other fixed income securities, as there is a certain greater risk. The credit risk of the issuing company causes its yield to be higher.

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Furthermore, debentures are an interesting way to diversify your investment portfolio. Since the investor can invest in larger and smaller companies, with different objectives.

We know that good investors diversify their investments in order to protect their assets.. However, there are some disadvantages to debentures.

Some debentures have a very long investment period, up to 10 years. The investor cannot redeem the investment before the established deadline.

So, if you are starting to invest, have an investment in CBD, with daily liquidity as an emergency.