Understanding Stocks, Bonds and Funds
Investing in financial market can be a very difficult task, especially for the beginners. The abundance of investment options can make it challenging to the investors to decide where to put hard earned money. Among all the Investment options stocks, Bonds and Funds stand out as fundamental investment options.
In this article we will delve into the world of stocks, bonds and funds, which will help to make informed investment decisions.
Stocks
Stocks are also known as shares or equities. It represents the ownership of a company. When you buy a stock of company which means you own a portion of the company. Companies issue stocks/shares to raise capital for various purpose, like expansion of business, research and development for expansion of product, repaying the debts, etc.
The companies can offer shares of company to public through Initial Public Offering (IPO) and get listed on stock exchanges.
Stock prices fluctuates based on the company’s performance, financials, market demand, company’s future plans, growth potential etc.
Bonds
The debt securities issued by Government, Corporations, or Municipalities to raise funds are called as Bonds. Bonds are considered as safer investment as it offers fixed income and less volatility. When you buying a bond you are lending money to the issuer. The interest rate of bond is known as coupon rate. Bonds have predetermined maturity date.
Funds
Funds such as Mutual Funds and Exchange Traded Funds (ETFs) are good investment options. It pool money from various investors to invest in a diversified portfolio of assets. The mutual funds are managed by professional fund managers.
The investment made in mutual funds are benefited with diversification across asset classes, like Equity, debt.
Understanding stocks, Bonds and Funds is very important for building a healthy portfolio. Stocks gives potential high returns but the risk factor is also high. The bonds gives us regular income with less risk but capital appreciation is limited. The mutual fund provides the benefits of both the diversification and professional management. The choice of investment depends on the financial goals, risk tolerance, and investment horizon.
