Bonds Vs Shares: When it comes to growing your money smartly, do we often get confused between bonds or shares? Both offer ways to build wealth, but the right choice depends on your financial goals, advantages it gives, and how comfortable you are with risk. To know about this in depth, we connected with VLA Ambala, SEBI Registered Research Analyst and Co-Founder of Stock Market Today, who believes that choosing between bonds and shares isn’t about trends, it’s about what suits you best:
Bonds Vs Shares: Which Investment Option To Choose?
What Are Shares?
Shares (or tocks) mean you’re buying a piece of a company. When the company does well, your investment grows. You may earn dividends (part of the profit shared with investors). It is ideal for long-term growth, and investors are comfortable with ups and downs.
What Are Bonds?
Bonds are loans you give to companies or governments. In return, you get fixed interest regularly. At the end of the bond term, your original amount is returned. It is ideal for steady, low-risk income.
VLA Ambala says, “When stock prices rise, the demand for bonds falls, and so does their price. On the other hand, we have seen that when stocks fall sharply, investors lean towards bonds to hedge their portfolios. This behaviour mostly has to do with the fact that bonds are lower-risk instruments than stocks. However, stocks are known to be higher-yielding instruments than bonds.”
This shift in investor behaviour highlights how the two asset classes often balance each other out, when one falls, the other tends to rise in popularity.
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Bonds Vs Shares: Taxation
Returns from bonds and stocks are taxed differently. VLA Ambala explains, “Since they generate cash differently, the returns are taxed differently. Bond earnings are subject to income tax, whereas returns on stocks are subject to capital gains tax depending on the holding period. Now, while capital gains tax may be lower than income tax for some tax brackets, bonds typically offer tax benefits that may not be applicable to stocks.” (Old Tax Regime Vs New Tax Regime)
So, depending on your tax slab and investment duration, one may be more tax-efficient than the other.
Who Should Choose Shares?
If you’re investing for 5–10 years or more, or if you’re building wealth for retirement and are fine with short-term ups and downs in exchange for higher growth, shares can be a good option for you. It is also perfect for people in their 20s–40s looking for capital appreciation.
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Who Should Choose Bonds?
If you want regular income with minimum risk, or if you’re close to retirement or have short-term goals. Also, you’re someone who prefers stability and predictable income, bonds could be your go-to.
Expert Tip: VLA Ambala, “A portfolio split of 20% bonds and 80% shares is a decent combination for investors seeking long-term growth while maintaining some stability. The 80% allocation will help make the most of stocks’ higher return-generating feature, while the 20% allocation in bonds will continue to act as a buffer against downturns and offer predictable income. This combination is most effective for investors with a moderate to high risk appetite and a long investment view.”
Whether you choose bonds or shares, the best option is the one that suits your goals and comfort with risk. Also, consult an investment advisor before investing in bonds or shares.
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