The financial markets in India provide many investment vehicles to investors. But among all, the two most important and popular choices of investment instruments are bonds and stocks.

Investors often face the dilemma of choosing wether to invest in bonds or in stocks. Ideally, a well-advised investment strategy is to invest in a mix of both stocks and bonds but the percentage of exposure to both also boils down to the risk taking capacity of the individual.

Investing in the financial market for long-term wealth generation has become increasingly popular among new age investors amid the wide amount of educational resources and easy-to-use tech-enabled investment platforms available.

But it is important for every investor to have a strong knowledge of the fundamentals about the stock market and the bond market before considering investing.

In this article, we will take a detailed look at the bond market and the stock market and how they are different from investment options.

Bonds: Bonds are considered as fixed income instruments as they pay a fixed rate of interest. They are also known as debt instruments as simply put they are loans made out to a company. The entity that issues the bond is known as the issuer and the investors who invest in the bond are known as the bondholders.

Companies and governments issue bonds to finance ongoing operations, new projects or acquisitions.

For eg: Shivam needs financial help to increase his business and he asks his friend Rohit to lend him Rs. 10 lacs for 5 years.He promises to return the money with 10% interest p.a.,for a 5 year period

This is exactly how bonds work.

An investment in a bond is similar to lending money to the issuer. So, in the bond world, Shivam becomes the issuer, Rohit becomes the investor/bondholder and 10% interest p.a. becomes the coupon rate.

Shivam may agree to pay Rohit the entire interest amount along with the principal directly on the date of maturity or pay the interest annually, semi-annually or quarterly. Fast forward, Rohit each year earns 10% interest, after 10 years, as per the agreement Shivam pays back the accrued interest of 10 years along with the principal amount of 10 lacs.

All in all this deal was a good one for both Rohit and Shivam. Shivam got the money he needed to build his business and Rohit was able to generate steady return on the original investment

Because a bond offers steady regular payments along with a return on the principal invested, bonds are often viewed as a stable and predictable form of investing.

Bonds are traded in the primary and secondary market and you can buy them via various brokerage house or reliable online bond-investment platforms like BondsKart.

Stocks: Stocks represent a share of a company's ownership, including a claim on the company's profits and assets.

When a company wishes to raise money, shares are issued and investors are invited to buy them. For their investment, investors receive a percentage of company shares, the right to vote, and profits over the company's needs.

In simple terms, when you purchase a share of a company, it means you are buying a small piece of that company. While bondholders lend money with interest, equity holders purchase small stakes in companies on the belief that the company performs well and the value of the shares purchased will increase.

Shares are traded in the stock market whose primary role is to give buyers and sellers a fair, regulated and controlled environment to execute their transactions. The stock market thus provides a sense of security and confidence to investors as trades are going to happen with full transparency.

The stock market has two components - Primary Market and Secondary Market. The primary market is for companies who list their shares for the public for the first time, it is in this market where the price of the stock is set. The secondary market, whereas, is the place where companies who have already listed their shares in the primary market, want to again list their shares for the general public. This is known as offer for sale (OFS).

Differences Between Stocks and Bonds: