Basics of Stock Market - Beginner

Difference between equity and debt

The stock market provides many opportunities to make wealth. Investors need to be familiar with the details of each financial asset before they can choose the one that suits their goals. Because of our financial situation and commitments, there is no one-size-fits all strategy in the stock market. A personalized investment strategy is essential. Financial advisors are there to help you with your investment journey. The risk-taking nature of each person is different so the choice of financial asset should be made accordingly. Largely, investors either prefer debt or equity. It is important to understand the differences between equity and debt markets. This article will give you an overview of the differences between equity and debt markets.

Debt vs. Equity

1SignificanceInvest in loansInvest in shares of a company
2RisquesLow riskHigh risk
4Type of returnInterestDividend
5Nature of ReturnRegular and FixedBased on the company's performance, Irregular

Debt Market

Debt market is less risky than equity market. Additionally, debt market guarantees regular income and capital preservation.The volatility in Equity market is more than that of Debt market. You become a shareholder when you invest in equity. In return, you could receive dividends from the company. Equity returns are also higher than those from debt instruments. Equity market: Shares can be bought and sold. Debt market: Bonds, certificates of deposit, debentures and G-Secs can be sold here.

Bonds can be issued by either a government or an organization. An investor in a bond lends money to the issuer, and the issuer in return offers to repay the loan at a specific maturity. The investor is also paid interest on a regular basis until the end of the loan tenure.

G-Secs are issued by RBI for the government of India. These coupons pay a fixed coupon, and can be either for a short or long term.

Companies issue debtentures, which have a fixed interest rate and are usually issued by them. Some convertible debentures can be converted into equity shares. They can be converted to equity shares, whereas non-convertible bonds cannot be converted to equity shares.

Equity market

Most investors avoid the equity market because they fear losing their capital. Equity markets are susceptible to economic, political, and global factors.

You can trade in the equity markets or invest. A company may issue shares to increase capital. You become a shareholder when you purchase shares in the company. As the company grows your share will increase in value. It is crucial to understand when to sell and when to keep the stock.

Traders are able to buy and sell shares in a very short time. To achieve long-term goals, you can also invest in shares. To buy and sell shares a trading and demat account is required. Let's now learn about the different types of trading.

Delivery: Your demat account will be credited with the shares you have purchased. From Monday to Friday, the Indian stock exchanges operate from 9.15 to 3.30pm.

Intraday: This is where one can buy and sell shares the same day. Your position must be re-balanced by 3.10 p.m.

Buy Today, Sell Tomorrow (BTST). You can sell shares through this process before the funds are credited to your demat account.

To buy or sell stocks at the right time, you must keep an eye on the stock market. You can also invest in equity via mutual funds if you are not confident. This article will help you understand the differences between the equity and debt markets.

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