Economy Simplified: Difference Between Debt and Equity

1. Equity securities indicate ownership in the company whereas debt securities indicate a loan to the company.

2. Equity securities do not have a maturity date whereas debt securities typically have a maturity date.

3. Equity securities have variable returns in the form of dividends and capital gains whereas debt securities have a predefined return in the form of interest payments.

4. Both securities are issued at face value and trade at market value which may be higher or lower than the face value.

5. Equity shareholders are entitled to voting rights whereas debt securities do not hold such rights.

Basis	Equity	Debt
Meaning	Equity is a type of source of finance issued against ownership of the company and share in profits.	Debt is a type of source of finance issued with a fixed interest rate and a fixed tenure.
Time Span	Equity capital is issued comparatively for a longer time horizon.	Debt capital is issued for a period ranging from 1 to 10 years.
Returns	The rate of return in equity capital is not fixed. It depends upon the earnings of the company.	Debt capital has a fixed rate of interest, and the entire amount is repayable.
Security	Equity capital is unsecured since ownership is provided instead of security.	Debt capital can be secured (against an asset) or unsecured.
Risk	It is riskier because if the company does not earn profits, then returns can be as low as zero.	It is less risky, as interest is provided even in the case of loss and the amount invested can be received back.
Instruments	Equity shareholders are considered owners of the company.	Debt is considered a lender to the organization.
Ownership	Ownership gets distributed amongst different shareholders according to their shareholdings.	In debt, ownership is not sacrificed.
Source	Shares can be issued to the general public and various organizations.	Loans can be taken from banks, and debentures and bonds can be issued to various institutions and the general public.