The heartbeat of any stock exchange, and perhaps, the economy is stocks and bonds. Regardless of whether you are trading on the Nifty or the Sensex, as an investor with a reputed broker such as Kotak Sec,urities, understanding specific financial terms can get confusing. If you are a new investor to the stock market, you may be at odds on whether to invest in stocks or bonds or better still to know the difference. So, what can be the right investment decision?
Simply put, bonds are debts. On the other hand, stocks refer to having an ownership or stake in a company. Given the daily fluctuations of the stock market, stocks are generally regarded as risky for the short term. This is because an investor could virtually lose his or her entire capital overnight in the stock market. But, if stocks are regarded in the long term, they have historically proved to be valuable and a critical component of wealth accumulation.
Bonds are generally regarded as a much safer form of investment than stocks and operate off of fixed interest rates that a company purchases from the investor. By investing in bonds, investors could receive annual interest rates as payout and the entire capital in full after the maturity period.
This is why stocks and bonds are sold differently. As an investor in the stock market, if you are looking to know how to invest in shares, you would need to open a trading and a Demat account with a reputed stockbroker such as Kotak Securities. You can purchase shares from the stock market through your stockbroker on either the NSE or the BSE.
Typically, bonds are issued by the Central Government Of India and are regulated and managed by the reserve bank of India. The government issues bonds to finance their activities; these bonds are also known as G-Sec. Depending on the prevailing interest rate, you can expect returns on the bonds after the tenure. Typically, government bonds pay interest between 7% to 10%, while its majority could be between three months to 30 years. Generally, government bonds are the least risky investment vehicles as you would be investing in the most stable form of entities – the government.
However, bonds are also issued by companies, that are referred to as corporate bonds which are distributed to raise capital. Corporate bonds can be of two types – convertible bonds and nonconvertible bonds. Convertible bonds can be converted into a set number of shares as and when you require. On the other hand, nonconvertible bonds do not offer any such features and are simply plain bonds.
Today, even small investors can purchase government bonds through the National Stock Exchange. Most government bonds are listed on the stock exchange on the secondary market, and these can be sold in due course of time. However, financial experts advise that government bonds must be maintained during its entire tenure to obtain comprehensive benefits. Risk-averse investors who tend to shy away from equity markets generally opt for fixed income instruments such as corporate bonds. As an excellent investment product for investors, government and corporate bonds are a stable investment that can help diversify and grow your money.
However, if you have a stronger risk appetite, you may want to consider the stock market and invest wisely with expert guidance and backing from a reputed and well-established stockbroker.