Expert: Doug Ingram - 4/30/2007

Question
I wish to know the difference between bonds and debentures.  What are the considerations for an individual investor?

Answer
They are essentially the same!  Bonds are debt!
When a company wants to raise capital, they either borrow or issue stock.  Stock represents ownership and bonds are a borrowing.
When you buy Treasury bonds, you are loaning the government money.  Corporate or municipal debentures (bonds) are debt of a company or city/county/state.
When you buy bonds, your investment is generally more secure than stock.  With stock, you have more upside.
However, bonds are rated by their ability to pay.  The term "debenture" usually refers to bonds that are not backed by collateral, but rather by the credit quality of the issuer.