The difference between investing: Understand stocks, bonds, and shares well

2025-12-24 20:02:02

The decision of an individual to invest requires a basic understanding of the types of investment instruments available in the market. Equity securities are one of the interesting options for those willing to accept higher risks and want to become part owners of a business. This article will help you understand the characteristics of equity securities and the differences between various types of securities, which will be beneficial for your investment decisions.

Understanding Equity Securities in Detail

What are (Equity) Securities?

Equity securities refer to the process where investors have a stake in a business or company, expressed through holding units of shares in that company. This type of investment carries higher risk compared to other securities because, in the event of bankruptcy, shareholders are paid after creditors have been settled.

Choosing to invest in equity securities requires investors to study the company’s stability, growth potential, and operational history. Although the investment amount may not be large, monitoring and analyzing the company’s performance are crucial parts of this investment approach.

How many types of equity securities are there?

Common Stock (Common Stock) represents ownership in a company. Holders are entitled to dividends based on profits and have voting rights at shareholder meetings proportional to the number of shares they hold. In case the company ceases operations, common shareholders are paid after preferred shareholders.

Preferred Stock (Preferred Stock) is a security that combines ownership rights with a fixed dividend rate, as specified in the security’s terms. Generally, preferred shareholders do not have voting rights but are prioritized for repayment over common shareholders.

Additionally, there are Warrants (Warrant) and other types that provide returns in the form of dividends or capital gains. These securities are issued by companies to raise funds for expansion.

Markets for Trading Equity Securities

The equity investment market is divided into two main parts:

First Market (Primary Market)

This is where companies create and offer securities directly to investors. Securities in this phase have not been previously issued.

Private Placement - PP (Private Placement - PP): Companies can offer securities to no more than 35 investors within 12 months or to financial institutions under specific conditions.
Public Offering - PO (Public Offering - PO): Companies must obtain licenses and meet specific requirements from relevant authorities before issuing securities to the public.

Second Market (Secondary Market)

This is where securities that have already been issued are bought and sold among investors.

The Stock Exchange of Thailand (SET): For large companies with a capital of at least 300 million baht.
Market for Alternative Investment (MAI): For medium and small-sized companies with growth potential, with a capital of at least 20 million baht.
Over-the-Counter Market (Over-the-Counter): Where buyers and sellers trade directly.

Mutual Funds: Easier Investment

Mutual Funds (Mutual Fund Securities) are pooled investments from multiple investors to create diversified portfolios managed by professional fund managers.

The pooled funds are invested in various markets such as stocks, bonds, or other securities according to the fund’s focus. Each investor holds units (Unit) representing a share of the fund. The value of these units fluctuates based on the total asset value of the fund.

The benefit of mutual funds is that investors who lack time or expertise can delegate investment management to professionals, reducing risk and increasing income opportunities.

Comparing Equity Securities, Debt Securities, and Stocks

What are (Debt Securities)?

Debt securities represent a status where the investor is a creditor of a company or government. This option is suitable for those seeking to avoid high risks but want steady returns. Returns depend on the maturity of the security and the issuer’s ability to pay.

Debt securities issued by government agencies, such as government bonds, typically offer lower yields, while those issued by private sector entities, like promissory notes or corporate bonds, tend to provide higher yields.

Stocks are documents that

Stocks are financial rights and ownership documents in a company. They are one way companies raise funds from the public to expand operations. Stocks are divided into small units, and purchasers become owners proportionally to their holdings.

Type	Ownership	Risk Level	Return Rate	Examples
Equity Securities	Business Owner	Moderate-High	High	Common Stock, Preferred Stock, Warrants
Debt Securities	Creditor	Low	Low but steady	Bonds, Debentures, Promissory Notes
Stocks	Business Owner	Moderate-High	High (Dividends)	Various stock units

The clearest difference

In terms of risk and return

Investing in equity securities grants the right to share profits and participate in decision-making, but it is also subject to market conditions; prices can rise or fall significantly. Conversely, debt securities position the investor as a creditor, with lower risk but also potentially lower returns.

In terms of contractual nature

Shareholders do not have formal financial contracts like debt securities. Their relationship is more business and control-oriented. Debt securities are formal financial contracts specifying payment terms, interest rates, and conditions.

In terms of repayment

Equity investors do not receive regular payments; profits are distributed as dividends or capital appreciation. Debt investors receive interest and principal repayment according to the contract terms.

Benefits of Investing in Equity Securities

Market experts manage the investments, so investors do not need deep market knowledge.
Equity securities include various types such as common stock, preferred stock, and derivative warrants.
Diversification reduces risks associated with investing in a single asset class.
Easy to buy and sell units without deep market understanding.
Risks are relatively lower compared to direct investments due to asset diversification.
Opportunities to receive annual or periodic dividends.

Risks to Consider

When investing in preferred stock, the main risk is price volatility that may deviate from expectations.

Investing in common stock involves risks related to business operations, dividend payment ability, legal issues, and changes in economic, political, or unforeseen events—all of which can pose risks to the investment.

Summary and Recommendations

Investing in equity securities requires confidence in selecting stable, growth-capable businesses with good management. Investors should study the business thoroughly, even if the investment amount is small, as participation in business growth is a key expectation.

Additionally, it is advisable to review investment performance every 3-6 months to adjust the portfolio according to current conditions. Choosing investment types suitable for one’s profile will help achieve investment objectives successfully.

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