Investment planning can be confusing at times when you are not sure where to invest and when to invest. As it is known to diversify your investment, one should know when to invest in stock and bond depending on the market sentiment.
Investing in equity or debt would also depend on your age profile. You would be less inclined to take risk in equities at an old age. It is an age where you would prefer debt investment. On the other hand at an early age you are willing to take a risk and hence equity would be a bet.
First, let us understand the basic difference between equity and bonds:
Features of Equity
1. Equity shareholders are part owners of the company depending on the number of shares they hold. Shareholders receives return on investment are dividends and capital appreciation.
2. However, dividends are not fixed and are paid only when the company makes profit.
3. Equities don't have maturity date.
4. The advantage of being a shareholders is they have a voting right.
5. Equities are considered liquid as they are traded on a Exchange and can be brought and sold at investors convenience.
6. In equities we can expect high returns as risk involved is also high.
7. At the time of winding up of the company, equity holders are paid after bondholders.
Features of Bonds
1. Bondholders are called creditors of the company.
2. Bondholders receive interest called as coupon payments at regular intervals.
3. Most of bonds comes with maturity date except perpetual bonds. Check link.
4. Bond holders do not have voting rights.
5. Bondholders are paid before shareholders at the time of winding up.
6. Bonds are considered less liquid when compared to equity
7. Bonds are less risky and give moderate returns. Click to know more on Bonds
Investment needs to move in tandem with market sentiment. As bond market is influenced by interest rates they are inversely related. If there is a decrease in interest rates it will prompt investors to move money away from the bond market to the equity market.
Know more How bond market impact equity market.
In other scenario, if stock market is very volatile and performing badly people tend to move to safer investment such bonds. So, one should be aware of market trend and move along with it to get better returns.
But, the most important is market conditions. When equity markets are high you should prefer debt and vice versa.