Bonds and stocks play important roles in an investment portfolio, where each of them offers some benefits and risks. While bonds provide a stable income and capital security, stocks yield higher returns and the potential for long-term growth. Understanding the differences between bonds vs stocks will help you make an informed investment decision. 

What Are Bonds? 

Bonds are debt securities that act as an agreement between a borrower and an investor, representing a loan granted by the borrower to the investor. Investing in a bond does not lead to any ownership in the which issued the bond. However, you can earn interest periodically on the purchase amount. Zero-coupon bonds are a debt instrument which does not provide any interest but they are issuable at a discount and redeemable at a premium. 

Primary Features of Bonds: 

1. Bonds offer assured interest payouts. 
2. Lower risk as compared to equity stocks. 
3. The tenure and maturity date of the investment are defined. 
4. The issuing entity can repurchase the bonds at a higher price than the par value. 
5. The authority that issued the bond pays interest at regular intervals. 

What Are Stocks? 

Stocks are a type of security, representing a share of ownership in the company. When you invest in stocks of a company, you gain ownership in the issuing entity. Stock investments provide returns of two types– Capital gains and/ or dividends. You earn capital gains when you sell the owned shares at a price that is higher than your purchase cost. Dividends, on the other hand, constitute a portion of the issuing company's profits that is given to its shareholders. 

Primary Features of Stocks: 

1. Stocks offer you the advantage of ownership in the issuing entity. 
2. Stocks provide returns in the form of capital gains and/ or dividends. 
3. In the case of stocks, shareholders have voting rights on significant matters of the issuing company like electing a board of directors. 
4. You can facilitate capital appreciation by purchasing shares whose price is continuously rising. 
5. The risk level of stocks is on the higher end. Therefore, it is important for investors to analyse their risk appetite before investing.

Difference Between Bonds and Stocks