Question

differnciate between debt and equity financing from both the company's and investors point of view

Answer 1

Listed down the comparison between debt and equity from Company as well as Investor in simple language to make you grab the concept. Thanks and good luck !

Basis for Comparison	Debt	Equity
Meaning	Funds owed by the company towards another party is known as Debt.	Funds raised by the company by issuing shares is known as Equity.
What is it?	These are called Loan Funds	These are called the Owner's Funds
Reflects	This reflects obligation on the part of the company to repay interest and redemption when it becomes due.	By investing in equity, an investor gets an equal portion of ownership in the company
Term	These are comparatively for short term or term is already fixed	Term is not fixed
Status of holders	Lenders	Proprietors
Risk	Debt funds are safer as compared to equity funds as they primarily invest in rated and risk-free government and corporate bonds	Equity funds are considered risky as compared to debt funds. Equity securities are volatile by nature and are sensitive to economic factors such as inflation, tax rates, currency fluctuations, bank policies etc. Thus any change in market prices will have a corresponding impact on the Net Asset Value (NAV) of the fund
Types	Term loan, Debentures, Bonds etc.	Shares and Stocks.
Return	Interest	Dividend
Nature of return	Fixed and regular	Variable and irregular
Collateral	Essential to secure loans, but funds can be raised otherwise also.	Not required