Equity vs. Debt Securities vs. Stocks: Which Should Investors Choose?

What is the difference if you are confused about different types of securities

When it comes to investing, the terms “equity securities,” “debt securities,” and “stocks” often appear frequently. However, many people are still confused about which one is truly different from the others. This can significantly impact investment decisions because each type has different levels of risk, returns, and operational characteristics.

In this article, we will compare them in detail to help you understand when to choose which type according to your investment goals.

Equity Securities: Ownership with Risk

Equity Securities (Equity) refer to documents that show you are a partial owner of a company. When you hold common stock or preferred stock, you become a stakeholder in the company’s performance.

###Common Stock (Common Stock) Common shareholders have rights:

• To receive dividends from profits (but not guaranteed)
• To vote at shareholder meetings
• To get a return of capital after creditors in case of bankruptcy

###Preferred Stock (Preferred Stock) This type of stock is like an “additional layer” of investment:

• Receives dividends at a predetermined rate
• No voting rights at meetings
• In case of bankruptcy, gets paid back before common stockholders

###Warrant (Warrant) An investment tool that offers high potential for value increase but also carries high risk. Returns come from selling it to other investors at a higher price.

Debt Securities: Stability with Lower Returns

Debt Securities make you a “creditor” of a company or government, not an owner. The risk is very low because it involves:

• Receiving interest according to agreed terms
• Stable and predictable returns
• Getting the principal back on the maturity date (maturity date)

Types of debt securities

• Government Bonds: Issued by the PROPERTY department, considered highly reliable, but with modest returns
• Private Sector Bonds: Bonds, promissory notes, offering higher yields but depend on the issuer’s creditworthiness

Stocks: A Small Part of a Company, Mainly a Fundraising Method

Stocks are units of ownership in a company. They are divided into small units so that the general public can become owners. Companies use this method to raise funds for business expansion.

Markets for Trading Equity Securities: Where for People

###Primary Market (Primary Market) New securities issued directly by companies to investors:

• Private Placement (PP): Offered to specific investors and institutions, no more than 35 people within 12 months
• Public Offering (PO): Offered to the general public, requires approval from the SEC beforehand

###Secondary Market (Secondary Market) Trading of already issued securities among investors:

• SET (The Stock Exchange of Thailand): For large companies with capital of at least 300 million baht
• MAI (Market for Alternative Investment): For medium-small businesses with capital starting from 20 million baht
• OTC (Over-the-Counter): Buyers and sellers transact directly with each other

Mutual Funds: Let Managers Handle It

Equity Mutual Funds (Mutual Fund) are another option for those less experienced:

• Pool money from many investors to create an investment portfolio
• Managed by a skilled Fund Manager (Fund Manager) who selects and manages investments
• Reduce risk through diversification across various asset types
• Each investor holds “investment units” representing their share

Advantages of mutual funds:

• No need for deep knowledge; leverage the expertise of the Fund Manager
• No need to monitor the market constantly
• Lower risk due to diversification
• Convenient buying and selling

Side-by-Side Comparison: Equity Securities, Debt Securities, Stocks, How Are They Different?

The Importance of Choosing Appropriately

Risk and Return:

• Equity Securities: Beneficiaries share profits but prices fluctuate with the market. High risk, high return.
• Debt Securities: Receive interest as per contract. Low risk, predictable returns.

Contracts and Conditions:

• Equity Securities: No financial contract; relationship is ownership.
• Debt Securities: Have contractual terms for payment, interest, etc.

Payment Methods:

• Equity Securities: Dividends or capital appreciation (No need to pay)
• Debt Securities: Receive interest over time as per the contract

Summary: Which One to Choose?

Choosing the right security depends on your goals and risk tolerance:

• If you want high returns and accept risk: Choose equity securities (Common Stock, Preferred Stock, Warrant)
• If you want steady income and low risk: Choose debt securities (Bonds, Bonds)
• If unsure or lack time: Try mutual funds managed by professionals

Remember, investing in equity securities requires studying the companies involved, checking credibility, growth potential, and regularly reviewing your portfolio every 3-6 months to adapt to current situations.

Keep in mind: Education and understanding the real issues are more important than rushing into investments. You will have a better chance of success!