What is the Difference between Bonds and Stocks?

What Are Bonds?

What Are Stocks?

What Are the Differences Between Bonds and Stocks?

Mentioned below are the key differences between bonds and shares:

Aspects

Stocks

Bonds

Value of Stock

The value of stock varies based on the performance of the organisation.

Bonds offer fixed income along with interest.

Participants

The participants in stock include traders, brokers, market makers, etc.

In case of bonds, the main participants include investors, speculators and institutional investors.

Returns

The amount of returns for a stock is relatively higher.

The amount of returns in case of bonds is comparatively lower.

Risk Level

While investing in stock, the involvement of risk is much higher.

Investing in bonds carry a relatively lower risk.

Issuance

Stock is mainly issued by private and public sector companies.

Bonds are issued by a government, financial institutions, private and public companies, etc.

Voting Rights

Owning stocks provides voting rights.

There is no voting right in case of bonds.

Type of Instrument

In case of stock, the prevailing type of instrument is equity.

When it comes to bonds, the type of instrument is a debt instrument.

Tax Liability

In case of stock, the shareholder may have to pay the Dividend Distribution tax (DDT).

When it comes to bonds, the bond owner does not need to pay any tax liability.

What Are the Types of Bonds?

What Are the Types of Stock?

Bonds vs Stocks: Which Is Better?

FAQs about Bonds Vs Stocks

What are the other types of stock apart from common and preferred stock? up-arrow

Besides common and preferred stock, there are some additional stocks like:

  • Large-cap Stocks
  • Mid-cap Stocks
  • Small-cap Stocks
  • Growth Stocks
  • International Stocks
  • Domestic Stock

What are zero-coupon bonds? up-arrow

Zero-coupon bonds are financial instruments that make no-interest payments periodically and are provided at a discount on face value. On maturity, it can be redeemed at the total amount.

Are bonds safer than stocks? up-arrow

Bonds are generally less volatile and risky compared to stocks. Furthermore, it tends to provide more steady and consistent returns on maturity.

What are the drawbacks of bonds? up-arrow

The noteworthy limitations of bonds include interest rate fluctuations, market volatility, credit risk, bankruptcy, and so on.