Investors need to know: How do equities, bonds, and stocks differ?

The current investment market offers a wide range of financial options for investors, but confusion between equities, bonds, and stocks remains a common issue. This article will help you understand the differences and make more informed investment decisions.

What is (Equity)? Why are investors interested?

Equity represents ownership in a business. When you invest in equities, you become a shareholder of that company. It is important to remember that the risk associated with this type of investment is higher than bonds because, in the event of bankruptcy, shareholders are paid after creditors and preferred shareholders.

If you plan to invest in equities, it is essential to study the company’s financial status, growth potential, and credibility thoroughly. Although each investment may not require a large capital, the desire to see the business thrive should be a primary reason for further research.

Types of equities investors should know

Common Stock (Common Stock) truly represents ownership of the business. Common shareholders have rights in various aspects, such as receiving dividends from profits, voting on company decisions at shareholder meetings, and in case of liquidation, receiving their share after creditors and preferred shareholders are paid.

Preferred Stock (Preferred Stock) is a security that lies between common stock and bonds. Preferred shareholders have the right to receive dividends at a fixed rate. Although generally they do not have voting rights, they are paid before common shareholders in the event of liquidation.

Warrant (Warrant) is a security that grants the right to purchase shares at a predetermined price in the future. Investors can profit from the price difference or dividends.

Businesses issue these securities to raise funds for expansion and operational activities.

Equity Market: Where do investors buy and sell these securities?

The equity market is a hub for raising long-term funds (more than 1 year) for businesses. It is divided into two main types:

Primary Market (

The primary market is where companies issue new securities to raise funds directly from investors. It is divided into two methods:

Private Placement )PP( is a sale offered to a limited number of private individuals. Companies can offer in two ways: to no more than 35 investors within 12 months or to institutional investors )as regulated by the SEC(.

Public Offering )PO( involves offering securities to the general public. The company must obtain approval from the SEC before selling in the market.

) Secondary Market ###Secondary Market(

The secondary market is where securities that have already been issued are bought and sold between investors. The SEC oversees the overall framework, and the Stock Exchange of Thailand facilitates trading. It is divided into three categories:

• The Stock Exchange of Thailand )SET( for large companies with paid-up capital of at least 300 million THB
• Market for Alternative Investment )MAI( for medium and small businesses with growth potential, with paid-up capital of at least 20 million THB
• Over-the-Counter Market where buyers and sellers transact directly.

Mutual Funds and Asset-Linked Equity Securities: Options for Busy Investors

Mutual Funds )Mutual Fund Securities( pool money from many investors to create a diversified portfolio managed by professional fund managers )Fund Managers(.

The fund invests in various markets such as stocks, bonds, or other securities according to its objectives. Investors hold units )Units( representing their share of the fund. The value of each unit depends on the total assets of the fund.

Advantages of investing in funds:

• Benefit from the expertise of fund managers without deep market knowledge
• Ability to invest in various securities like common stocks, preferred stocks, warrants, and derivatives
• Risk reduction through diversification and higher potential returns
• Convenience in buying and selling units without closely monitoring the market
• Potential dividends in the form of annual or daily distributions

Risks associated with investing in equities

Before investing, investors must understand the risks:

Risks of preferred stocks involve price fluctuations that may not meet expectations.

Risks of common stocks include:

• Business operational risks
• Dividend payment ability
• Company debt issues
• Legal or management problems

Macroeconomic risks include economic conditions, political situations, and unforeseen events that can impact the overall investment market.

Comparing equities, bonds, and stocks: What’s the difference?

) Key features of bonds

Bonds are financial assets that give investors creditor rights. They are suitable for investors who dislike high risk because they offer steady returns and diversify the portfolio.

Returns on bonds depend on the bond’s maturity and issuer’s creditworthiness. They are divided into:

• Government bonds issued by the Ministry of Finance or government agencies, offering low but stable returns
• Private bonds such as promissory notes and debentures, offering higher yields

Features of stocks

Stocks are equity securities representing financial and business rights in a company. They are the primary method for companies to raise capital from the public. Investors who buy stocks become owners of the company proportional to their shareholding.

Detailed comparison table

Main differences between equities and bonds

Risk and returns:

Equity (stocks) holders have rights to profit distributions via dividends and voting rights in company decisions. Therefore, their risk is higher because stock prices can fluctuate with market conditions.

Bondholders are creditors of the company or government. Bonds carry lower risk but tend to be more stable in value.

Contracts and payments:

Equity holders do not have a formal financial contract with the company. Their relationship is based on business and control rights, with profits distributed as dividends or capital gains.

Bondholders have a clear financial contract with specified repayment terms, interest rates, and conditions. They have the right to receive interest or returns as per the contract.

Summary: Choosing the right security for you

Investors can select securities based on their risk tolerance and expected returns to best meet their investment objectives.

If you seek high returns with moderate risk and want to be part-owner of a business, equities are the most suitable. However, thorough research of the target company’s potential is necessary before deciding.

For those who prefer stability and consistent returns, bonds are a safer choice.

Remember to review your investments every 3-6 months and adjust your portfolio according to changing circumstances and your investment goals.