Stocks and Bonds

Things to consider :

What is Stock?What is Bond?DifferencesHow to choose one of them?Conclusion

Stocks When you buy a stock from a company itmeans that the owner is sharing a slice of thatcompany with you. If the company gets successful andearns lots of profit and money- you get money, if thecompany can not make a profit you will not make aprofit, if the company goes bankrupt you also gobankrupt. There is no guarantee.

Bonds A bond is a contract to raise funds in the form of aloan (or debt). A bond is purchased for a fixed periodof time – during this time, the investor is paid amonthly amount, called the coupon amount. Themonthly coupon amount paid to the investor is theinterest paid for the bond amount invested. At theend of the fixed time period, the bond holder willreceive the original amount invested. Everything is guaranteed.

Types of Bonds• Government Bonds Government issues bonds to raise funds. These bondsare loans to the government that are funded by theinvestors. Government bonds are very low risk, stableinvestments.• Corporations Bonds Bonds are issued by certain corporations to raise funds.These bonds carry a relatively higher risk than the

government bonds

Difference A stock represents a small portion of a company. Aninvestor who owns stock in a company is the owner ofa very small portion of the company, the ownership isin proportion to the quantity of stock owned. If thetotal stocks in a company is 1,000,000, an investor whoowns 100 stocks owns 0.01% of the company. If acompany goes bankrupt, the bond holders are given ahigher preference than the stock holders in recoveringtheir investments from the assets of the company.

DifferenceBond investments generate a steady flow ofincome in the form of coupon payments.This is a preferred investment for investorslooking to invest a large sum of money over a longterm. These investments are relatively stable and carryless risk than equity investments.

Stock Bond

Ownership Loan Marketable Non-marketable High risk Low risk No guarantee Guaranteed return

Conclusion• If you are a risk-taker and want to get a piece

of a company you would probably choose to be a stock investor.

• If you think, may be small but guaranteed amount of money is a better way of investing,

go for bond investing.