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Vijai Mantri, MD & CEO of Pramerica Mutual Fund explains the difference between a buying a share and a bond.
Q: What is the difference between buying a bond and buying a share?
A: You buy share for capital appreciation, you buy share for growth, you buy share to create wealth. You buy bond to protect your wealth you have created so, in a way it is different but interestingly like equity have a PE multiple, bond also have PE multiple. Therefore, it could be good guide to you to look at when you should invest in the bond fund, for instance if a bond have a 10 PE multiple then it means the current yield is 10 percent and if a bond have a 12.5 PE multiple then it means the bond is offering 8 percent. So, you can use that as a tool to invest in the bond or not to invest in a bond.
Second thing share market plays a very important role when one look at investing in the bond because many time people invest in the bond or deposits of the company which are unknown and once they invest they do not know what happen to their portfolio, what has happened to the company but if you invest in the company which is listed on a stock exchange, the price of the share will tell you many things which perhaps is the financial of the company may not be able to tell you. So, in a way they are not connected but in a way they are connected.
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