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Bond Market Vs Stock Market - What is the Difference? Research Team | Posted On Tuesday, May 07,2019, 01:24 PM

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Bond Market Vs Stock Market - What is the Difference?



Bond Market vs Stock Market – What’s the Difference?

The bond market and the stock market are two most important types of financial markets. They help companies or the government raise funds through the issue of bonds or via the capital market. The key differences between the two markets are as follows:

  • The bond market includes companies, government agencies and non-profit organizations that raise funds by issuing bonds. Companies raise funds via IPOs in the primary market. The Company raises funds by issuing shares to the general public for the first time through IPOs.
  • The bond market trades in low-risk products and is mainly used for the purpose of investment. Returns depend on the interest income received from the debt securities. The stock market deals in equity (products of high-risk) and it also helps professionals and casual investors become part-owners of a Company and enjoy the profits of the Company, ensuring higher returns than bonds.
  • Investing in the bond market is less risky and investment is relatively safer vis-à-vis stocks. Investing in the stock market is riskier than bonds as stocks are a highly volatile investment. You could end up in losses.

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SEE ALSO: Features of Capital Market

What is Bond Market?

A bond is an interest-bearing debt certificate. The bond market in India comprises of both government bonds and private sector bonds. It is a market where investors trade mainly in bonds issued by the government like municipal bonds, government bonds or bonds issued by the private sector like corporate bonds and public sector bonds.

The government bonds are one of the safest investment options for those who want to invest in debt securities, as they enjoy a Sovereign Guarantee and offer high liquidity. Private sector bonds offer higher returns than government bonds, but there is risk associated with them.

The bond market in India plays a crucial role in the development of the Indian economy. It helps the government raise funds from investors for various development projects through issuing bonds. Bonds are also issued by private organizations with high credit ratings or by government authorities like RBI.

What is the Stock Market?

A stock exchange is a platform where the buyers and sellers meet to participate in the trading of stocks and securities. The participants of the stock market must be registered with the stock exchanges. The stock market is also known as the share market or equities market.

The stock market is regulated by The Securities and Exchange Board of India (SEBI), which overlooks the functioning of the capital market and devises guidelines for fair trading and protecting the rights of investors. The companies use the funds from the investors for growth of the business.

SEE ALSO: International Capital Markets

There are Two Major Stock Exchanges in India:

Bombay Stock Exchange or BSE: It is the oldest stock exchange in Asia. It is based in Mumbai and lists close to 6,000 companies and is one of the largest stock exchanges in the world. Securities that the BSE lists include stocks, stock futures, stock options, index futures, index options and weekly options. Average daily turnover of BSE is Rs 200 Crores.

National Stock Exchange or NSE: The NSE has developed into a sophisticated, electronic market, ranked fourth in the World, by equity trading volumes in 2015. Trading commenced in 1994 with the launch of the wholesale debt market and a cash market segment shortly thereafter. The National Stock Exchange has been a pioneer in Indian financial markets, with the first electronic limit order book to trade in derivatives and ETFs. The exchange supports more than 3,000 VSAT (Very Small Aperture Terminals), making the NSE the largest private wide-area network in India.

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