In the prevalent dynamic environment, everyone strives to one-up their earnings, lifestyle, and quality of life. It is very difficult to cope with the ever rising expenses in this time of inflation. Due to demonetization and the subsequent introduction of GST in India, everyone is struggling to survive and adapt to the recent changes in the financial environment.
As it gets very difficult to survive only on a single income source, it is very important for everyone to invest in various investment instruments to add to their wealth. People tend to generally invest in bonds, equity shares, saving schemes, mutual funds, and fixed deposits. The various advantages of these investments are-
Nowadays, the two most favored investment options by investors are:
Institutions looking to raise capital, issue a part of the ownership of the company in return of a value. This is done by the means of issuing of shares to general public. In exchange for providing a specific value, the investor is entitled to the ownership of the company in proportion to the actual value of the company.
Features of shares-
Bond is a type of investment which acts as a fixed-income-reaping investment. The amount invested in bonds acts as a loan for the issuing institution. This institution uses the money so raised for its current as well as long-term expenses. The bondholders reap regular interest on their investment as well as are offered a surety of repayment of their invested amount.
Features of bonds-
The basic differences between shares and bonds can be easily illustrated in the table below.
Feature |
STOCKS |
BONDS |
1.) Definition |
Investment instruments which provide part ownership of a public limited company in exchange for a monetary value. |
Investment instruments which act as a borrowed capital for the institution/organisation issuing them. |
2.) Utility |
Money raised through the means of shares is utilized for the company’s growth and current expenses. |
Money borrowed through the means of bonds is utilized for long-term development and asset building. |
3.) Return of initial investment |
Not guaranteed |
Guaranteed |
4.) Profit earned on investment |
Not fixed |
Fixed |
5.) Term for return earned |
Dividend |
Interest |
6.) Source of purchase |
Stock Exchange |
Government Institutions Financial Institutions Private Institutions Public Undertakings |
7.) Status of investor |
Part-owner |
Lender |
8.) Risk on investment |
High |
Very Low |
9.) Time of maturity |
Depends on the investor |
Fixed at the time of purchase |
10.) Type of Investment instrument |
Equity |
Debt |
The above-mentioned table clearly illustrates the basic differentiating features of between the two most popular instruments of investment, namely stocks and bonds.
In favorable times, shares may earn higher returns than bonds, for which the returns are pre-decided. On the other hand, bonds seem to be a much safer investment considering the volatility of the share market.
Depending on the risk appetite, liquidity restraint, investment amount and the purpose of investment, an investor can carefully access where to invest his finances.