When you invest your money in stocks (or any other market-linked instrument for that matter), you can never be sure of your returns. Investing in these instruments comes with a fair share of risks and rewards.
Published on 09 June 2022
OPEN A FREE* DEMAT AND TRADING ACCOUNT
IN 15 MINS*
While you can multiply your wealth several times if all goes well, you can also lose your money in case of unfavourable market movements.
That is why financial recommendations always recommend that every investor must diversify their investment portfolio. Diversification refers to investing your money in various asset classes with different risk-reward propositions to reduce your overall risks in the long term. Ideally, if you’re investing in equities, you should also invest a portion of your money in debt securities.
One of the best ways to diversify your investment portfolio is by investing simultaneously in stocks and bonds. While stocks are pure equity instruments that help you gain high returns on your investments, bonds are debt instruments that prioritise capital preservation over capital appreciation.
In this article, we will tell you the differences between stocks and bonds. We will also conduct a brief study of the bond market vs the stock market. Continue reading to know more.
What Are Stocks?
Stocks or shares are equity instruments representing a part of the ownership of the issuing company. Whenever a company decides to raise capital by diluting its equity ownership, it releases its shares for sale in the public domain.
When you purchase stocks or shares of a company, it means that you’ve got fractional ownership in that company. The company can distribute its profits to you in the form of a dividend. You can also make profits by selling the stocks or shares owned by you when their prices rise.
Below are some prominent characteristics of stocks:
A stock represents the ownership unit of a company. When you invest in stocks, you get a part of the ownership of its issuing company.
Stock prices are highly volatile depending upon several factors. This provides you with a chance to earn very high returns.
Owing to their volatile nature, stocks are highly risky. You should consider your risk appetite carefully before investing in stocks.
You can also get a part of the company’s profits in the form of dividends.
What Are Bonds?
Bonds are purely debt instruments. Whenever an organisation wants to take a loan from the public, it issues bonds. Bonds are usually issued by Governments and private companies. When you invest in a bond, it means that you have given a loan to the issuing organisation. In return, the issuing organisation will provide you with interest.
Owing to their debt-oriented nature, bonds are relatively safer investment instruments as compared to shares or stocks. Also, bonds are issued for limited periods only, after which the money is returned to the investors.
Below are some prominent characteristics of bonds:
Bonds are issued by Governments and private organisations to raise debt funding from the public
The issuing companies pay interests to investors
Since bonds are debt-based instruments, they are less volatile
Investments in bonds are focused on capital preservation rather than capital appreciation
Bonds are issued only for limiter periods after which the money is returned to investors
Stocks vs Bonds
Now that you know about both these instruments, the basic difference between stocks and bonds must be clear to you. Let’s conduct a brief study of stocks vs bonds based on various parameters. It will help you know the differences between the two financial instruments more clearly.
Parameter
Stocks
Bonds
Definition
Stocks are equity instruments that are used to sell the fractional ownership of a company
Bonds are debt instruments that are used to raise funding from the public in the form of a loan
Instrument type
Stocks are purely equity-based instruments
Bonds are purely debt-based instruments
Issuance
Stocks are generally issued by large corporations private limited, and joint-stock companies
Bonds are usually issued by Governments, public sector authorities, private companies, trusts, and credit institutions
Status of investors
The investors own a part of the issuing company
The investors only lend their money to the issuing company and don’t become the owners
Returns
Investors in stocks can earn very high returns through capital appreciation. However, it depends upon the market’s performance.
Investors in bonds usually get fixed returns on their investments in the form of interests
Risks
Stocks are highly risky instruments. Returns from stocks are never guaranteed
Bonds are relatively safer instruments and involve fewer risks.
Tax liability
Investors in bonds are not exposed to any tax liabilities
Investors may have to pay Capital Gains tax or Dividend Distribution tax
Investors
Retail investors and speculators usually invest in bonds
Anyone can invest in stocks, be it, retail investors, institutional investors, traders, or brokers
Market
Bonds can be sold or purchased Over the Counter (OTC). They do not have any centralised trading system like the stock exchanges
Stocks can be sold or purchased through the stock exchanges
To Conclude
We hope that after reading this article, the differences between stocks and bonds are clear to you. Both financial instruments have some advantages as well as limitations. You must consider your risk appetite, investment horizon, and investment objective while deciding to invest in them. Ideally, you should create a diversified investment portfolio with the right mix of stocks and bonds.
Team Espresso
We care that you succeed
Bringing readers the latest happenings from the world of Trading and Investments specifically and Finance in general.
Relative Strength Index (RSI) – Everything You Need to Know
You might have seen stock pricing charts displayed at trading terminals. These charts help traders in analysing the market and predicting future price movements of stocks. They consist of colourful lines plotted in smaller panels in between a graph-like structure. These lines are technical indicators that reflect various market parameters related to stocks.
You must have heard of the term “Foreign Direct Investment” or FDI several times. It is one of the three major types of foreign investment in India; the other two are Foreign Portfolio Investment (FPI) and Foreign Institutional Investment (FII).
There are eight stock exchanges in India, out of which the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) are the two prominent ones. If you wish to invest in the share market, you must do it via these stock exchanges. However, as per the Securities and Exchange Board of India (SEBI) guidelines, a common man cannot trade directly with the stock exchanges.
You can trade in stocks by placing buy and sell orders on the stock exchanges. However, you cannot trade directly in the stock markets. For this, you will need to open a Demat and trading account with a stockbroker.
You can invest in bonds by purchasing bond certificates over the counter. Whenever a company or Government issues bonds, they send notifications via various mediums. You can go and purchase these bonds by paying the requisite money.
It depends on various factors, such as your risk appetite, investment horizon, and investment objective. Depending on these factors, you should allocate your investment to stocks and bonds. If you have a high investment horizon, you should invest more in stocks. However, if you prefer the security of your capital, you should invest more in bonds.
Related Articles
Relative Strength Index (RSI) – Everything You Need to Know
You might have seen stock pricing charts displayed at trading terminals. These charts help traders in analysing the market and predicting future price movements of stocks. They consist of colourful lines plotted in smaller panels in between a graph-like structure. These lines are technical indicators that reflect various market parameters related to stocks.
You must have heard of the term “Foreign Direct Investment” or FDI several times. It is one of the three major types of foreign investment in India; the other two are Foreign Portfolio Investment (FPI) and Foreign Institutional Investment (FII).
There are eight stock exchanges in India, out of which the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) are the two prominent ones. If you wish to invest in the share market, you must do it via these stock exchanges. However, as per the Securities and Exchange Board of India (SEBI) guidelines, a common man cannot trade directly with the stock exchanges.
You can trade in stocks by placing buy and sell orders on the stock exchanges. However, you cannot trade directly in the stock markets. For this, you will need to open a Demat and trading account with a stockbroker.
You can invest in bonds by purchasing bond certificates over the counter. Whenever a company or Government issues bonds, they send notifications via various mediums. You can go and purchase these bonds by paying the requisite money.
It depends on various factors, such as your risk appetite, investment horizon, and investment objective. Depending on these factors, you should allocate your investment to stocks and bonds. If you have a high investment horizon, you should invest more in stocks. However, if you prefer the security of your capital, you should invest more in bonds.
Sharekhan Comtrade Private Limited (TM) operates the web site accessible from the URL www.myespresso.com (the “web site”').
Sharekhan Comtrade Private Limited is committed to protecting your privacy and utilising technology that gives you the most powerful, safe, online experience that you can get anywhere else.
Sharekhan Comtrade Private Limited does, however, gather certain information that is provided by you to the Web Site. Sharekhan Comtrade Private Limited believes that by collecting this information Sharekhan Comtrade Private Limited is able to provide you with a personalised web experience, and to assist its own sales team and advertisers in efficiently reaching an appropriate audience.Sharekhan Comtrade Private Limited does, however, gather certain information that is provided by you to the Web Site. Sharekhan Comtrade Private Limited believes that by collecting this information Sharekhan Comtrade Private Limited is able to provide you with a personalised web experience, and to assist its own sales team and advertisers in efficiently reaching an appropriate audience.
Sharekhan Comtrade Private Limited requests the minimum information it believes necessary to achieve this goal.
The following discloses Sharekhan Comtrade Private Limited's information gathering and dissemination practices for the Web Site:
System Data:
Sharekhan Comtrade Private Limited uses your IP address to help diagnose problems with our server and to administer the web site. Your IP address is used to identify you and your shopping cart and to gather broad demographic information.
Registration Data:
The Web Site's registration form may require users to give us contact information (like their name, phone number and e-mail address), unique identifiers (like their PAN Number) and demographic information (like their pin code, age or income level). The Web Site uses customer contact information from the registration form to send the users information about Sharekhan Comtrade Private Limited and promotional material from some of Sharekhan Comtrade Private Limited's partners. The customer's contact information is also used to contact the visitor when necessary. Unique identifiers (such as PAN numbers) are collected to verify the user's identity. Demographic and profile data is also collected at the Web Site. We use this data to tailor the visitor's experience at the Web Site, showing them contents that we think they might be interested in, and displaying the contents according to their preferences. This information is shared with advertisers on an aggregate basis.
Links and Co-Branded Sites:
This site contains links to other Web Sites which are not necessarily been screened or reviewed by www.myespresso.com. Sharekhan Comtrade Private Limited is neither responsible for the privacy practices or the contents of such Web Sites nor shall be held answerable for the inaccurate, inappropriate or offensive data, material, information, products and services that may be viewed on those sites.
Sharekhan Comtrade Private Limited may operate a number of co-branded sites. Policies regarding information collection and sharing may differ on some of these co-branded sites. If you have any particular questions, you should check the privacy statement that appears on each co-branded site.
Order Forms:
The Web Site uses an order form for customers to request information, products and services. The Web Site collects visitors' contact information (like their mobile number or e-mail address), unique identifiers (like their PAN number) financial information (like their account or credit card numbers) and demographic information (like their pin code, age or income level). Contact information from the order form is used to send orders, information about Sharekhan Comtrade Private Limited, and promotional material from some of Sharekhan Comtrade Private Limited's partners to the visitors of the Web Site. The visitor's contact information is also used to get in touch with the visitor when necessary. Financial information that is collected is used to check the users' qualifications and bill the user for products and services. Unique identifiers (such as PAN numbers) are collected from Web Site visitors to verify the user's identity.
Surveys and Contests:
The Web Site's online surveys ask visitors for contact information (like their mobile number or e-mail address) and demographic information (like their pin code, gender, age or income level). The Web Site uses contact data from its surveys to send the user information about Sharekhan Comtrade Private Limited and promotional material from some of Sharekhan Ltd.'s partners. The customer's contact information is also used to contact the visitor when necessary. Users may opt-out of receiving future mailings; see the choice/opt-out section below. Demographic and profile data is also collected at the Web Site. The Web Site use this data to tailor its visitor's experience at the Web Site, showing them content that it thinks they might be interested in, and displaying the content according to their preferences. This information is shared with advertisers on an aggregate basis.
Sharekhan Comtrade Private Ltd run contests on the Web Site in which we ask visitors for contact information (like their e-mail address). Sharekhan Comtrade Private Limited uses contact data from its contests to send users information about Sharekhan Comtrade Private Ltd. and promotional material from some of our partners. The customer's contact information is also used to contact the visitor when necessary. Users may opt-out of receiving future mailings; see the choice/opt-out section below.
Third-Party Advertisement Servers:
Sharekhan Comtrade Private Limited engages the services of an outside advertisement company to display advertisement on the Web Site. These advertisements may contain cookies. While Sharekhan Comtrade Private Limited uses cookies in other parts of the Web Site, cookies received with banner advertisements are collected by the Advertisement company, and Sharekhan Comtrade Private Limited does not have access to this information.
Protection of your Data and Information:
The privacy and protection of your data and information provided to us is of vital importance. Sharekhan Comtrade Private Limited shall ensure to safeguard the security and confidentiality of any information you share with us. Any personally identifiable information of the customers obtained by us shall not be used or shared other than for the purposes to which the customers consents. However security and confidentiality of information cannot be guaranteed cent percent. Hence despite our utmost efforts to protect your personal information, Sharekhan Comtrade Private Limited and www.myespresso.com cannot warrant the security of any information you transmit to us through our online services. Such transmission of your personal information is done at your own risk.
Disclosure of Customer Information :
Sharekhan Comtrade Private Limited and www.myespresso.com shall not deliberately disclose customer's personally identifiable information to any unauthorized third person, save and except where such information shall be disclosed in good faith and for the purpose of law for the time being in force or to protect the rights and property of Sharekhan Comtrade Private Limited and www.myespresso.com.
Public Forums :
The Web Sites makes chat rooms, forums, message boards and/or news groups available to its users. Please remember that any information that is disclosed in these areas becomes public information and you should exercise caution when deciding to disclose your personal information.
Supplemental Information :
The Web Site supplements the information that you provide with information that is received from third parties.
The Web Site DOES NOT entice by the prospect of a special game, prize or other activity, to divulge more information than is needed to participate in the activity.
Further to the above, in light of the recently notified Information Technology (Reasonable security practices and procedures and sensitive personal data or information) Rules, 2011. (Hereinafter referred to as the Rules)
The following shall be deemed to be sensitive information :
Password;
Financial information such as Bank account or credit card or debit card or other payment instrument details;
Physical, physiological and mental health condition;
Sexual orientation;
Medical records and history;
Biometric information;
Any detail relating to the above clauses as provided to body corporate for providing service; and
Any of the information received under above clauses by body corporate for processing, stored or processed under lawful contract or otherwise:
provided that, any information that is freely available or accessible in public domain or furnished under the Right to Information Act, 2005 or any other law for the time being in force shall not be regarded as sensitive personal data or information for the purposes of Rules.
Collection of Information:
Compliance with KYC guidelines as per SEBI / Exchanges / Or any other Act, law or regulation requiring the same and any internal KYC guidelines formulated by Sharekhan Comtrade Private Limited.
In order to provide enhanced trading experience to the client.
In order to provide any further information to be provided to regulators.
Such information may be collected in a manner that the client is always aware of the collection and purported usage of the same. The client shall have an option to withdraw consent to share the information. However such intimation shall be required in writing. Such intimation shall only be taken into account from the date on which the same is received. Sharekhan Comtrade Private Limited may choose to stop services to such a client in case such intimation is received. Such information shall only be used for the purpose it is collected.
Clients would be allowed an option not to disclose any information to be collected, provided the same is in compliance with regulatory requirements.
Disclosure of information:
Disclosure of sensitive information would be as per the terms agreed by the clients. For any change in such terms, the clients would be informed.
Provided no consent may be required in case the same is being shared as per compliance guidelines or as required by regulators.
Any information being disclosed to third parties would be in accordance with the Rules and would be done provided such third party has the same level of compliance guidelines as Sharekhan Comtrade Private Limited.
Sharekhan Comtrade Private Limited shall allow clients to review their personal information and the same shall be allowed to be edited provided exchange guidelines relevant to the same are followed.
Sharekhan Comtrade Private Limited shall maintain reasonable security practices and procedures and maintain a comprehensive documented information security programme. In the event of an information security breach, Sharekhan Comtrade Private Limited or a person on its behalf shall be required to demonstrate as and when called upon to do so by the agency mandated under the law, that there have implemented security control measures as per their documented information security programme and information security policies and information security policies that contain managerial, technical, operational and physical security control measures that are commensurate with the information assets being protected with the nature of business.
KYC Languages
Download Client Registration Documents (Rights & Obligations, Risk Disclosure Document, Do's & Don't's) in Vernacular Language :
Note: "This document is a translated version of the client registration documents in English and is being provided in vernacular language to facilitate better understanding by the investors. In case of any ambiguity, the contents of the English version would prevail."
NDNCR Terms & Conditions
By accepting the Terms & Conditions, you authorise Espresso, its representatives and agents to provide information about various products, offers and services provided by Espresso through any mode, including telephone calls, SMSes, emails, letters and any other mode of communication. You also confirm that laws in relation to unsolicited communication referred in "National Do Not Call Registry" as laid down by "Telecom Regulatory Authority of India" will not be applicable for such information/communication.
Filing Complaints on SEBI Complaint Redress System (SCORES) - Easy and Quick
Register on the SCORES portal
Mandatory details for filing complaints on SCORES:
Name
PAN
Address
Mobile Number
Email ID
Benefits:
Effective communication
Speedy redressal of grievances
You can file complaints on SCORES through https://scores.gov.in/scores/Welcome.html
