Bonds Vs Stocks: Know Which Is Better for Secure Investment
Since Investment is a big decision, no one should take hasty decisions. A wrong decision taken in haste can result in loss that can not only impact your savings but also disturb you mentally. You may lose your peace of mind and suffer losses instead of earning profit.
Why to rush and why to invest in the investment instrument that can risk your capital?
Before we understand the better and secure investment options from the two popular options – bonds and stocks, let us learn more about these products.
What are bonds?
Bonds in a simple to understand language is a loan to a company issuing bonds from an investor termed as a bondholder. Government or corporate entity to fulfill the need of capital raises money from the market by issuing bonds. Each bond generally has a minimum face value of Rs. 1000. The bonds issuer promises to pay a fixed coupon rate (interest) in exchange of the money borrowed from an investor at a fixed interval. The interest payment interval can be monthly, quarterly, bi-annually, or annually.
BONDS are a loan to a company while STOCKS are the ownership in a company.
Bonds generally have a maturity period, a fixed rate of interest, and a face value. It is not market-linked and so inspective of the market condition, the bond issuer have to pay the bondholders the due interest and principal back at the maturity.
Types of Bonds
Although there are many types of bonds in the market, we will talk about the important bond types.
Bonds are typically classified in two diverse types:
1. Secured bonds
2. Unsecured bonds
What is the meaning of secured bonds?
Secured bonds are the bonds backed by an asset class as a collateral. It is safe and provides many other advantages to the investors.
Secured bonds are further classified into two
1. Corporate bonds – these bonds are issued by the issuer with a security. The security can be a high value machinery, warehouse, or any other fixed asset. In the case of corporate bonds, bondholders have the flexibility to liquidate the company assets to claim their investments in case the company defaults in payment.
2. Sovereign bonds – these categories of bonds are issued by government and are considered safer. The government issues sovereign bonds to repay a debt or to fund a new project. Buying sovereign bonds online can be a good option. To by bonds, you can also visit BondsIndia.com or alternatively connect with the investment experts at BondsIndia during the working days.
The other bonds popular in the Indian market are:
• Fixed rate bonds
• Puttable bonds
• Callable bonds
• Mortgage bonds
• Traditional bonds
• Zero coupon bonds
• Tax-free bonds
• Green bonds
Pros and Cons of Bonds
Learning about pros and cons of bonds can help you take better decisions, minimize risks, maximize earnings in the form if interest income.
Advantage with Bonds
• Secure in comparison to stocks
• A source of fixed income
• Provides a fixed interest on your investments
• Interest is paid to you periodically
• Secured bonds are asset backed
• Insignificant risk of principal loss
• A hedge against inflation
Disadvantages with Bonds
Unlike other avenues, bonds do carry some cons. Some of the cons that you can consider include – market volatility, lower returns, fluctuations in the interest rate, credit risk, and more.
Pros and Cons of Bonds
Investing in bonds now is free from hassle. Today, there are various medium that you can use to buy bonds online in minutes. BondsIndia.com facilitate easy and simple trading in bonds. Every new customer visiting bondsindia.com have to register with us. It will hardly take a minute. After you create your account, go for the online KYC, browse through bonds that are listed and made available for the trade. Choose the bonds you wish to buy, now select the mode for payment, initiate the payment and thus you are done with your investment in bonds.
There are registered brokers who have a dedicated platform to buy and sell corporate bonds, municipal bonds, which includes buying new issues directly from the company and from the secondary markets. Many investors in the retail segment own bonds received through bond mutual funds or bond exchange-traded funds (ETFs).
What are stocks/equity?
Stocks help you get ownership in a business. Your decision to buy stocks make you a partial owner and grant you the right to participate in certain company meeting and decisions. The stock price over time rises if the company does well and vice versa. Your investment in stocks can bring to you either higher returns or loss or total loss. A stock also termed as equity thus is
a security that refers your partial ownership in a corporation issuing the stock/equity/share. A stockholder is also called a shareholder or stockholder.
Types of Stocks
Stocks unlike bonds are classified into varied types. The classification of stocks is made considering several factors. Common stock is the most common type of stock that provide you an ownership in a company. It also allows you to cast vote in the annual shareholder meeting when there are a shareholder matters.
The popular stocks in the Indian market are:
• Common stock
• Preferred stock
• Large-cap stocks
• Mid-cap stocks
• Small-cap stocks
• Domestic stock
• International stocks
• Growth stocks
CLASSIFICATION OF STOCKS
1. Classification based on ownership
> Preferred & common stocks
> Hybrid Stocks
> Stocks with embedded derivative options
2. Classification based on market capitalization
> Large Cap Stocks
> Small Cap Stocks
> Mid Cap Stocks
3. Classification based on Risk
> iBeta Stocks
> Blue Chip Stocks
4. Classification based on price trends
> Defensive Stocks
> Cyclical Stocks
5. Classification based on dividend payment
> Growth Stocks
> Income Stocks
6. Classification based on fundamentals
> Overvalued Shares
> Undervalued Shares
Advantages & disadvantages of Stocks
Stocks can be a worthwhile investment option for many but for a few others investing in stocks cannot be an ideal choice. The Pros and cons of stocks will help you make better decisions.
Pros of Stocks
> Diversification in portfolio
> Higher returns on your investment
> Benefit of dividend
> Easy access to different stocks for investment
> The right to vote in company matters
> Flexibility to invest in smaller amount
Cons of Stocks
> Unsecured investment
> No guarantee of profit
> Stock prices are risky
> Potential risk of total investment loss
How can I buy stocks?
Buying stocks today is easy and simple. There are many reputed stockbrokers in the market to assist you buy stocks. The easiest way to buy stocks is through an online stockbroker. You can directly buy stock from the company selling stocks. You are free to use other available mediums to invest in stocks of different companies.
Stocks Vs. Bonds Which is the Right Investment Option for You?
Let us now discuss which is the right investment option for you. For the same let us have a quick comparison between the two.
Do not forget that unlike cash, physical gold, Bonds & Stocks are also a great medium to generate wealth. Your habit of disciplined investment in bonds or stocks can help you achieve different financial goals in your life.
You are free to choose Bonds and Stocks for short-term and long-term investments. Both are a great financial tool. The choice to invest in Bonds or Stocks can be made considering your need for investment. If you are looking for an income that is fixed, stable, periodic, and there is a minimal risk of capital loss then Bonds is the right option. You can choose to invest in corporate bonds offering interest ranging between 7 to 14% annually. Fixed deposit (FDs) has their own advantage. Bonds is the best option also for the retail investors who want to earn better interest than fixed deposits.
The above detailed information concludes that Bonds in comparison to stocks, is a more secure investment option.