Bonds and Stocks. What Are The Differences?

Bonds and Stocks. What Are The Differences_

Bonds and Stocks. Are they distinguishable? A conventional bond is a loan from the holder to the issuer of the bond. Generally, the issuer pays the holder interest at fixed intervals and pays the principal back at maturity. When governments and corporations want to raise money, they issue bonds. The value of the bonds can change over time depending on their attractiveness to potential buyers.

Conventional Bonds and stocks are similar and different in some cases.

1.     Both bonds and stocks are securities, but the bondholders cannot have ownership rights whilst stockholders can have the ownership right in the company.

2.     Bondholders are considered to have priority over stockholders as a creditor, so the bondholders are repaid in advance of stockholders.

3.     Bondholders do not benefit from the company’s growth or loss while the company’s growth or bankruptcy influences stockholders equally.

Note: investing in conventional bonds is not permissible for Muslim investors.

Nevertheless, Islamic Bond, or we call Sukuk, is involves indirect ownership of an asset. This is because the return is based on profit and loss sharing, not based on interest. Basically, investing in bonds is less risky than investing in stocks because of its volatility.

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