Bond market v/s Stock market: The key differences

Bonds 15 May 2021 1:40:PM

Stocks-vs-Bonds-GEPL-Capital_(1) Stocks-vs-Bonds-GEPL-Capital_(1)

What are Bonds?

Is an agreement between the Issuer and an Investor, where the issuer agrees to pay interest on the face value of the bond for a specified period of time. The issuer can pay interest on the bond either annually; semi-annually; monthly or in cumulative nature as per the specified terms when the bond is issued. Therefore, it is rightly classified as the Fixed Income Product which carries a fixed rate of interest for a specified period of time. The bond market is where investors go to buy and sell corporate or government-issued debt securities. 

The bond market provides a steady, albeit nominal, source of regular income for investors. In some instances, investors receive bi-annual interest payments, such as Treasury bonds issued by the federal government.1 Many investors choose to hold bonds in their portfolios as a way to save for retirement, for the education of their children, or for other long-term needs.

What is Equity (Stock Market)?

Equity shares represent ownership in a company. When you invest in equity shares, you become a fractional owner of the company. As an owner of equity shares, you have the right to vote in the annual general meetings of a firm and have a say in the working of the company. A stock market is a location where investors go to exchange corporate-issued equity securities. Usually, stocks trade on multiple markets, while bonds are traded mostly over the counter instead of in a centralized venue.

The main function of the stock market is to bring together buyers and sellers in a fair, regulated, and controlled environment where their trades can be executed. It gives those involved the trust that trading is carried out with transparency, and that pricing is fair and fair. This regulation not only helps investors, but also the corporations whose securities are being traded. Not only are investors helped by this regulation, but also the companies whose securities are being traded. The economy thrives when its robustness and overall health are maintained by the stock market. There are two components to the stock market, just like the bond market. First-run equity is reserved for the primary market: initial public offerings (IPOs) will be issued in this market. This market is facilitated by the underwriters, who have fixed the initial securities price. On the secondary market, which is where the most trading activity takes place, equities are then opened up.

Basis

Bonds

Equity

Meaning

Bonds are Fixed Income instruments that highlight the debt taken of the issuing body towards the holders and a promise to pay back at a later stage with interest

Stocks are instruments that highlight the interest of ownership issued by the company in exchange for funds

Issuers

Govt. institutions, financial institutions, companies, etc.

Corporates

Status

Holders are the lenders to the firm

Stockholders are the owners of the company or firm

Risk Levels

Relatively low

High

Form of Return

Interest in Face Value

Dividend Income

Additional Benefits

In liquidation Bond Holders given preference for repayment

No preference only Voting Right

Market

Over the Counter / NDS OM & Exchanges

Centralized Stock Market

Type of Instrument

Debt

Equity

Time of Maturity

Fixed at the time of Issuing Securities

Depends on Investors. No specified Maturity

Owners

Bondholders

Stockholders

Bonds & Equity Investors in India

Bonds are not familiar with the Retail Investors in India. The bonds are mainly owned by Banks; Financial Institutions; Insurance Companies; Provident Fund Trusts; FIIs; HNI Investors. The price fluctuates as per the prevailing interest rates in the country. 

Equity is more familiar in India with all the class of Investors beat retail investors or institutions. This instrument is widely traded on NSE & BSE and is regulated by the SEBI.  Price fluctuation depends on the number of factors like GDP; Inflation; Interest Rates; Corporate Performances; Taxation; Government Policies etc.

So, this is it about bonds V/S stocks let us know which one is better. If you want to invest in equity (Stocks) we offer you the golden opportunity of a free Demat account. now get your Demat account in a few steps and start your trading journey

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