Difference between Equity & Debt

We use the word “Equity” & “Debt” in put daily conversations. We also hear both of these words from Financial Experts in News Channels & in Finance Magazines, Blogs & Forums. But Do you know the difference between Equity & Debt?

Do you know What is Equity & What is Debt? -

What is Equity? -

Well, in simple language, Equity means a piece of ownership. Say for example, if you own 10 stocks of Reliance Industries today than what it means? Well, it means that you are the owner of that much portion of Reliance Industries.

Equity reflects ownership interest in the Company. Equity is not just the piece of paper or a ticker symbol on the stock exchange. But it has ownership interest in the Company. Mukesh Ambani is the Chairman of the Company because he owns almost 55% of Equity of Reliance Industries through its Promoter Group Companies.

What is Debt? -

Well, The Debt means borrowed money. Suppose a Company wants to borrow huge amount of capital but the amount of borrowed capital is so much that only one Bank or Financial Institute can’t lend it. So the Company issue a Debt Paper. Means Company borrows little amount of money from the mass population. So anyone who buy Bonds of that Company will become a lender of that much portion of Company’s Debt.

Government also goes into Debt by issuing Government Bonds. The Federal Bank of United States also goes into Debt by issuing Treasury Securities in which other countries of world & Investors invest.

Equity & Debt has negative correlation so any Portfolio should have the combination of Both Equity & Debt.