A bond is an unsecured loan that you offer to a business. The company does not provide any guarantee for the obligation, but pays a higher interest rate to its creditors. In the event of bankruptcy or financial difficulties, bondholders are paid later than bondholders. Obligations are different from stocks and bonds, although all three are types of investment. Let’s discuss about the different types of investment options for small investors and entrepreneurs.

Obligations vs. Inventory:

When you buy shares, you become one of the owners of the company. His fortune rises and falls with that of the company. If the value of the company’s shares skyrockets, your investment pays high dividends, but if the value of the shares declines, the investments pay little. The higher the risk you take, the higher the rewards you get.

Obligations are safer than shares, in the sense that they have guaranteed payments with high interest rates. You are paid interest on the money you lend to the business until the maturity period, after which everything you invest in the business is returned to you. Interest is the profit you make on the bonds. While stocks are for those who like to play the course and are willing to take risks for the sake of high returns, bonds are for people who want a secure income.

Obligations vs. jumps:

Obligations and bonds are similar except for one difference: bonds are safer than debentures. In the case of both, you are paid guaranteed interest that does not change in value regardless of the fortune of the company. However, bonds are safer than debentures but have a lower interest rate. The company provides collateral for the loan. Furthermore, in the event of liquidation, bondholders will be paid before debenture holders.

An obligation is safer than a stock, but not as safe as a bond. In the event of bankruptcy, you have no collateral that you can claim from the company. To compensate for this, companies pay higher interest rates to bondholders.

Every investment, including stocks, bonds or debentures, carries an element of risk. If you are unsure of the best investment options for your business, you can consult a small business consultant who will guide you to the best investment options available to you. Investing wisely today can pay big dividends tomorrow.