Investing in listed shares and bonds

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Difference between investing in listed shares and bonds.

Bonds are IOU financial instruments issued by companies and the Government. They are similar in nature to bank loans. A bondholder receives a periodic coupon (normally every 6 months) and the par value on maturity. These are fixed obligations, meaning you can sue the issuer if they are not paid.

Like bank loans, bonds can be secured against the issuer’s assets. You can foreclose on the asset and recover your money from its sale.

You can be an active bond investor by trading the bonds and make capital gain (or loss). Bond prices change based on the issuer’s credit standing and the prevailing interest rates. But if you are a passive investor, you will just get your fixed coupon and par value.

For shares, an investor makes money from dividends and capital gain from share price increases (or loss). Dividends are at the discretion of the company. You cannot sue if you don’t get any dividends. There is also no security. If the company goes under, an ordinary shareholder is the last to get any remaining cash after all statutory bodies and creditors have been paid. Hence, shares are riskier than bonds.

Next, how does a retail investor buy bonds?