Bonds are used by issuers to raise money from the capital market. In layman's terms, bonds are essentially instruments of debt created between the lender and the borrower. During certain economic situations, there might be a need for capital generation. As a result, it's normal to see a host of bonds being circulated in the market.  But how do you know which bond is right for you? What factors should you consider before investing in a certain bond? Let’s find out.  Types of Bonds  There are several ways to classify bonds. The most common ones are based on issuer, maturity, interest payment structure, and features. Let’s look at the different bonds under each basis.  Based on Issuer  Treasury Bonds  Treasury bonds are issued by the central bank directly on behalf of the government. For short-term investments, an alternative to treasury bonds can be treasury bills.  Read more: How to Buy Stocks: 10 Key Factors to Check Municipal Bonds  Countries with provincial and local government structures may issue municipal bonds based on the government entity. It works the same way as treasury bonds. Agency Bonds Agency bonds are issued by government-affiliated or controlled entities. For example, a government-sponsored enterprise like Biman can issue bonds to raise capital to improve its infrastructure and service.  Investment Grade Bonds  Investment-grade bonds are issued by entities with high credit ratings. Typically the coupon rate for such bonds is low and the investment is more secure.  Junk Bonds  These bonds are issued by companies with low credit ratings and high default probabilities. The returns from these bonds are high whereas the overall investment is less secured.  Supranational Bonds  These types of bonds are issued by international entities like investment banks and the World Bank. The denomination of these bonds is not geographically limited.  Read more: Premortem Analysis: How to Anticipate Failure Based on Maturity  Short Term Bonds Short-term bonds usually have a maturity of less than three years. Treasury bills also fall under the short-term bond structure.  Medium Term Bonds Medium-term bonds have a maturity period between 4 to 10 years.  Long Term Bonds Long-term bonds usually have a maturity period of over 10 years. It also includes perpetual bonds.  Read more: How to Buy Bangladesh Government Treasury Bond: Everything You Need to Know Based on the Interest Payment Structure  Fixed-Rate Bonds  Fixed-rate bonds usually have a fixed coupon rate throughout the maturity period of the bond. For example, the Bangladesh Government Treasury Bond is a fixed-rate bond.  Floating-Rate Bonds  Floating-rate bonds can fluctuate compared to a benchmark rate set at the start of bond sales. Here, the coupon rate varies during the lifetime of the bond.  Zero-Coupon Bonds  These types of bonds do not pay any periodic interest rate. Instead, these bonds are sold at a discount and the investor gets back the face value of the investment upon maturity.  Read more: Gold vs Diamond: Which Should You Choose for Investment? Based on Features  Convertible Bonds Bonds that can be transformed into predetermined shares of the borrowing entity.  Callable Bonds Bonds that can be redeemed by the issuer before it reaches maturity.  Puttable Bonds Bonds that can be sold by the investor to the issuer at a predetermined price before maturity.  Read more: Shares vs Bonds: What is the Ideal Investment Opportunity Perpetual Bonds Bonds that do not have any maturity date.  Inflation-Adjusted Bonds Bonds whose coupon rate and the principal are adjusted per the inflation rate. Sukuk Bonds issued in line with the Islamic laws.  Read more: How to Raise Angel Investment for Startups in Bangladesh

If someone thinks of investing their money, it almost universally comes down to two major ways – either through equity or debt. Equity is where an investor becomes a part owner of the invested company or business. Whereas debt is the traditional lending and borrowing process. Here the investor acts as the creditor and the return is the interest plus capital. Interestingly, these two concepts are also what define shares and bonds. So, Shares or bonds, what is the best investment stream? And more importantly, what’s right for you? Let’s find out. What are Shares? A share is a unit of measurement for a stock, which is the actual asset in which you invest. Shares make up the basis of equity investment. Here the investor invests to become a part owner of the company. The size of the owner depends on the number of shares bought. It also depends on the number of shares in circulation by the company. Read More: Apartment Buying Mistakes to Avoid to Secure Your Investment At its core, an investor or shareholder utilizes the high-risk, high-return factor of share investment. For example, if the company consistently performs well, the shareholder will enjoy a consistently high ROI. On the other hand, if a company performs, poorly, it will lead to a loss of investment. Shareholders receive dividends annually based on the profit margin of the company. Depending on the business cycle, this margin can be high or even so low that there might be no dividend at all. If an investor holds a substantial share in a company, they get a place on the board of directors where they can vote to decide the future course of the company. Shares essentially allow an individual investor to take responsibility and the implications are also simple. You share the profit as well as the loss in an equal manner, hence the high risk, high return factor. Read More: Metaverse Real Estate Investment: Buying Land, Apartment, Property in Virtual World Advantages of Shares Compared to Bonds The main advantage of shares is the potential for high returns. Other investment opportunities can hardly provide a similar level of return possibilities. Shares also pay dividends which is another addition to lucrative profit margins. The return on investment will grossly depend on the period of high profit or less. Since the instrument of investment for shares is equity, investors can expect proportional growth or loss on their investments. The same doesn’t hold for bonds. Investors can input their ideas into the future process of a business with share investments. It makes for a more controlled and impactful investment compared to bonds. Read More: Share Market Investment Guide: How to Invest in Stocks in Bangladesh Disadvantages of Shares Compared to Bonds The only disadvantage of shares compared to bonds are the high-risk factor. There is no way to understand how a business will perform given the volatile investment climate.  Every share is traded through a central stock exchange commission which may go through a gross fluctuation by the minute. So if you’re risk-averse, chances are that shares aren’t really for you. Read More: Making Investment Decisions: Factors to consider when investing money What are Bonds? You lend your friend a crisp 100-dollar bill and he pays you back 110 dollars the next month. The additional 10 dollars over the capital is the interest on top of the capital. Bonds follow this exact principle of debt instrument. Here the investor, who buys the bond, is the creditor, and the bond seller company or business is the debtor. The investor (bond buyer) and the company (bond seller) essentially draw up a loan agreement. As part of the agreement, the company will pay back the invested sum within a certain date along with a regular fixed interest rate on top of the capital. It's low risk with a low return but provides better security on the invested capital. Read More: Plot vs Apartment: Which is the Better Investment Option? Advantages of Bonds over Shares The only advantage of bonds over shares is the low volatility. Unlike shares, bonds have a fixed return rate on top of the capital. Here, the investor knows upfront how much they will be getting out of the investment at the end of the cycle. Even in case, the company goes bankrupt, the bond investors will get priority compared to the shareholders in returning the dues. As a result, the investments of bondholders are secured in both ways. Disadvantages of Bonds Compared to Shares The main disadvantage of bonds compared to shares are the reduced return and lack of equity. At the cost of security, bonds investor has to forego a substantial ROI generation. The bonds' investors do not get any say in the process and proceedings of the business which is otherwise possible with shares. Read More: Is Sanchayapatra a Good Investment in 2022? Lifecycle of Bonds and Shares Both bonds and shares have their respective lifecycles which are often important for an investor to understand which investment cycle works best for them. A share has typically 4 phases in its lifecycle – accumulation phase, markup phase, distribution phase, and downtrend phase. Each of these phases comes up cyclically where the price stabilizes, goes up, shareholders sell and the price tumbles again. The bond lifecycle is much more simple compared to the shares. Here there’s a primary market where the bond gets issued, a secondary market where the bond gets traded, and finally maturity, where the investors get back their capital. Read More: Is Gold a Good Investment in 2022? The companies can use the resolved bonds at maturity to venture into new refinancing opportunities. Shares vs. Bonds – Which One is the Better Investment Option? Shares and bonds are both great investment options. But the choice of investment depends much on what you want out of your investment. If you want a high return and aren’t worried about the associated risks, go for shares. But if you are more concerned about the security of the investment and returns are your secondary concern, then head over to the bond market. Read More: Saving vs. Investing Money: Know the Pros and Cons Final Words Shares and bonds are both equally popular as investment opportunities. The process of investing through shares usually requires a BO account in a brokerage firm. On the other hand, a bond requires an agreement drawn out through a third party, usually a bank. Both stocks and bonds are protected by strict government financial regulation with the former having its separate regulatory commission. So depending on your preference, both shares and bonds can be an effective way to increase your wealth base.