Equity Investment V/s Debt Investment

Depending on investment goals, these differences may strongly influence preferences of the buyer. All investments come with risk. However, debt instruments offer less risk than equity investments. One’s investing targets may favour equity investments, if they're seeking striking growth or profit potential. Conversely, one might focus on debt instruments when they prefer consistent income and less risk. Before investing one should tailor their investment actions to match objectives and risk tolerance. 

 

  • Equity investment is purchase of shares/ part of ownership that-     
    come with a “claim” on the earnings and/or assets of the     corporation ( percentage of ownership depends on the number of shares owned by the investor compared to total shares).         

  • Debt investment is lending money to an entity for which the investor gets specify fixed payments that have part of principal amount and part interest amount being paid back. 

  • Equity Investments have high risk of loss for return for potentially higher reward. 

  • Debt Investments are less risky investment with lower but consistent returns. 

  • When the corporation liquidates, equity investors are paid later. 

  • When the corporation liquidates, debtors are paid first. 

  • Income from equity investment comes under the head “ Capital Gains” during the computation of tax.   

  • Income from debt investment comes under the head “Income from Other Sources” during the computation of tax. 

  • Types of Equity Investments: Shares, Mutual Funds, Futures & Options (F&O), Arbitrage Schemes    

  • Types of Debt Investments: Bonds, Debentures, Loans Commercial Papers, Certificate of Deposit, Fixed Deposits, G-securities, etc. (G-securities are the oldest and most important in the  Indian market determining the level of interests in the market )