A Bond is as a debt instrument that aims to mobilize the fund by loaning. In general, the bondholders are creditors who have been guaranteed to receive the principal and interest in the specific date (Maturity date). But the bondholders will not be entitled to make any decisions on the company's issue as holding common shareholders. The bond is issued by government called Government Bond and issued by company called Corporate Bond.
The bondholders will receive a return on the form of interest at the fixed rate, which investors are able to estimate the revenues and plan the financial status due to the income is guaranteed in terms of the payment amount and duration.
Investing in bond is same as saving money for the future (savings) due to the low-risk financial instrument. More, each bond has its maturity date and bondholders are in the status of creditors of the issuers. Therefore, when reaching the maturity date, the bondholder shall receive a principal.
As bondholders are creditors, the shareholders are the owners. As a result, creditors will be entitled to a claim against a securities issuer before the owner. An issuer must pay interest to a bondholder before paying dividends to common shareholders. And, in the case of bankruptcy, the company must sale the company’s property and pay to its bondholder; then, the remaining amount will be paid to the common shareholders.
Basics for comparison | Common Stock | Bond | |
|---|---|---|---|
Government Bond | Corporate Bond | ||
Instrument type | Equity | Debt | Debt |
Owners | Shareholders | Bondholders | Bondholders |
Issue by | Companies | Government | Companies |
Return | Dividend | Interest | Interest |
Claiming priority | Low | Hight | Hight |
Voting right | Yes | No | No |
Risk | High | Low | Low |
Returned guarantee | No | Yes | Yes |
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