Where to Invest: Bond or Share

Where to Invest: Bond or Share

Where to invest? This is the biggest and most confusing question in the world of investment. As a new investor, you might be confused about Equity Funds, Mutual Funds, ETF Funds, Bonds, Insurance, or directly enter in the Bull Market? Don’t be confused each of these is a good way to invest. The topic we have chosen here for discussion is Bond or Share which one is best for a new investor. 

Both stocks and bonds are potential forms of investment. Investment firms give you the opportunity to invest in a government / private company or a corporate entity with the possibility of future profit through the sale of bonds or stocks.

How do Bonds or Shares work in the stock market? What is the difference between them?

Let's start with 'Bond'. The easiest way to get acquainted with the term 'bond' is to get an idea about the loan. When you invest in a bond, you are basically lending your money to a company, corporation, or any government sector of your choice. Then you get a BOND or receipt from that company or sectors that promise a certain rate of interest as well as period of investment.

Bonds are usually bought and sold on the open market. The face value of a bond generally fluctuates depending on the interest rate of the market economy. In other words, the interest rate of the market economy directly affects the value of your investment. For example, if you have a bond of Rs1000/-, and you are getting 5% interest per annum. If that moment the general bank interest rate goes down below 5%, then you can sell the bond at a higher price. But if the general interest rate goes above 5%, you can still sell the bond, but then the value or face value of your bond will go down.

The rationale behind this system is that investor trade in higher interest-rate bonds and the bonds are sold at a low price to offset the void to keep them afloat with normal interest rates. The OTC market, which is comprised of banks and security firms, is the favorite trading place for bonds, because corporate bonds can be listed on the stock exchange and can be purchased through stock brokers.

Since Stocks are just the opposite of bonds, you, as a bond investor, will not directly benefit from the success of the company or the share of its profits. Instead, you will receive a fixed rate of return on your Bond. Basically, this means that no matter how much profit the company makes or how many times the annual income of the business, it will not affect your investment. Your bond return rate will remain the same as you were offered at the time of purchase. This percentage is called the coupon rate.

It is also important to remember that bonds have maturity dates. After the maturity date of the bond, the value of the bond is returned to the investor. Different maturity dates are issued for different bonds. Some bonds' maturity period can be up to 30 years long.

When trading in bonds, the biggest investment risk you are taking is the amount of the original investment you are likely to not get back. Obviously, this amount of risk can be reduced if you do a good job researching the company or organizations you have chosen to invest in.

It is generally considered safe to trade the bonds of companies with higher credit rates or qualifications. The best example of a "safe" bond is a government bond. Another is a blue-chip bond. Blue-chip companies are well-established companies that have a long proven and successful track record. Of course, the coupons or interest rates of such companies will also be lower.

If you are willing to take more risks for better coupon rates, you can probably choose companies with lower credit ratings, such as unstable and unproven companies. Remember, bonds of small corporations have a great risk of default; However, the other side of the coin is that the bondholders of such companies pay more interest. These companies generally have much lower credit ratings. In case of bankruptcy of such a trading company, the bondholders will get compensation before the stockholders.

So, for low risk, choose to invest in bonds from established firms. You can earn cash on your return, but the amount will not be too large. Or, you may choose to invest in smaller, unproven companies. The risk is high, but if it pays off, you will have a lot more money in your bank account. As with any investment venture, bonds carry both risk and reward potential.

Stocks represent the shares of a company. These shares give you part of the ownership of the company holding these shares. Your share in that company is determined by the number of shares you invested. Stocks come in mid-cap, small-cap, or large-cap categories.

Like bonds, if you choose your stock carefully, and if you properly evaluate investments and analyze the risk of the company, you can reduce a lot of risks in the stock business. Clearly, a stable and well-known corporation is more likely to stabilize than a new and unproven company is more likely to lose stock value.

Stocks, unlike bonds, always fluctuate in price and are traded on the stock market. Their price directly depends on the performance of the company. If the company is doing well in performance, growing, and making a profit, so is the value of the share. If the company is weak or fails, the share price of that company decreases.

Stock trading is done in different ways. In addition to trading as shares of a company, stocks can also be traded in the form of options, which is a type of futures trading. Stock can be bought and sold on a daily basis. Depending on the rise and fall of the stock market, the price of a particular stock may rise or fall. Because of this, investing in stocks is much riskier than investing in Bonds.

Both stocks and bonds can turn into profitable investments. However, it is important to remember that both options carry a certain amount of risk. Awareness of risk, mitigation, and taking steps to control it The right steps in your financial decisions will help you to make more profit in the investment business. The key to wise investing is always good research, a solid strategy and guidance can get you on the right track.

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