Stocks and bonds: a beginner's guide to the stock market

In simple words, stock or equity is an ownership of a fractional part of a company. This entitles the owner of the stock to a portion of the company to the ratio of the total assets of the company and the owner of the stock earns profits equal to the number of stocks they own. A single stock is also called "shares". In other words, a stock is a type of asset or security that indicates the holder has proportionate ownership in the company which has issued the stock. Companies issue or sell stocks mainly to raise funds for operating/expanding their businesses. Historically, stocks of good companies have performed far better than any other asset class over the long term. Ace investor and the Wizard of Oklahoma, Warren Buffett is one of the most successful names in the field of investing and has built a huge corpus through investing in stocks.

A bond is a fixed income instrument that indicates a loan made by an investor to a borrower which is typically issued by a corporate or government. It is a kind of memorandum of understanding between the issuer and the investor and indicates the details of the loan and its payment details. Bonds are issued by corporates, municipal corporations, states, and the sovereign government to manage funds to carry out projects or operations. Owners of the bonds are debtholders or creditors to the issuer of the bond. Bond includes its end date, the payment details, and the rate at which the payment is to be returned to the creditor. Bonds are typically regarded as instruments of very low risk and can be added in your portfolio to reduce your risk and safeguard your investments during times of volatility.

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