Difference Between Shares and Bonds
You can invest in a company in the form of shares or bonds which are sold and purchased through the stock market.
When a company divides the capital into equal and small parts and issues them in the market, they are known as shares. People buy these shares and get part ownership in the company. Shares last to the lifetime of the company. The people who get the shares are known as shareholders and these shareholders get paper certificates against the money that they pay for buying the shares. The value of the shares changes according to the financial position of the company. If the company earns more, the shareholders get their share but if the company loses on profits then the price of the shares get reduced. The shareholders have the liberty to sell their shares as and when they want but they get the current market price of the share on selling them.
Bonds are like fixed term investments made by the people. The companies pay interest on this money. It is like a contract under which people lend money to the company under certain terms and conditions and a fixed rate of interest. They get certificates against the investment made. The interest is paid at a fixed term like annually or six monthly.
Below mentioned points will make the difference between bonds and share clearer:
- Shares gives you part ownership in the company and you become sharer of profits and loss while in case of bonds you get a fixed interest on your money irrespective of the financial condition of the company.
- Shares can be sold as and when desired while bonds are for a fixed term.
- Shares are influenced by the trends in share market while bonds have nothing to do with it.
- There is no guarantee of income in case of shares while the money that you get as interest in bonds is fixed.
- Bonds are safer way to invest in a company while shares are risky.
If a company dissolves then bondholders are the first to get paid.