Financial Dictionary -> Investing -> Bond

Basically a bond is labeled as a debt security. In this case an authorized issuer is involved, who owes a debt to the holder, which he's supposed to repay the principal amount as well as the interest at a later set date. This later date or day is known as the maturity date or day.

In other words a bond is a loan in the form of a security following different terms and conditions. In this case the lender is the bond holder, the issuer is the borrower and finally the coupon is the interest. Bonds can be used by the person or persons to expand their business, garage, showroom renovation etc. depending on the type of business they are doing, instead of taking loans in such circumstances, many companies opt to give out bonds by way of which the issuer as well as the holder is benefited, since the holder if he keeps the same amount of money in hand, it's not going to multiply, but on the contrary if he invests in bonds, he's going to benefit and the issuer as well doesn't have to hunt around for finances from other external sources.

Bonds and stocks are almost the same, but the major difference is in case of stocks the stock-holders are owners of the company. It means the stock-holders have an equity share, while in case of bond-holders they have the status of only ordinary lenders; they don't possess any other rights whatsoever and hence are at a disadvantage.

The second major difference is that bonds have a fixed maturity date, while stocks can even be kept indefinitely with you, there's no restriction on that whatsoever. Moreover the bonds need to be redeemed after the maturity period, while stocks do not have any such strings attached to it.