A bond is a debt security that can be traded freely on the open market and represents part of a loan.
When an investor decides to invest in a bond, they become a creditor to the bond issuing company. In exchange, they receive remuneration as well as repayment of the nominal amount at maturity.
Governments, banks, and large companies are the primary issuers on the bond market. Retail investors trade on the secondary market, either directly, through a financial intermediary (e.g., bank, broker, or online broker), or indirectly, through schemes like the OPCVM* French investment fund, for example.
The difference between shares and bonds
A bond is a debt instrument, while a share is an instrument of ownership that represents a share of capital and confers the status of shareholder onto its holder.
This legal distinction is central to the different rights attached to these two types of financial instruments.
Unlike shares, where the dividends paid are dependent on an issuer’s financial results, any interest due on bond investments is set out in advance in an agreement. The same goes for the recovery of invested capital. With shares, this only takes place in the event of a share transfer and at a value that is not predetermined.
Both shares and bonds are tradable on the Stock Exchange, giving investors the opportunity to buy and sell their securities freely on the open market.
The table summarises these points:
| Bonds | Shares | |
|---|---|---|
| Investor status | Lender | Shareholder |
| Legal definition | Debt instrument | Instrument of ownership |
| Revenue type | Interest | Dividends |
| Return on securities | Predictable | Uncertain (linked to performance) |
| Reimbursement/payment schedule? | Yes (apart from perpetual bonds) | If there is a share transfer |
| Tradable on the stock market | Yes | Yes |