What is the difference of equity, shares, stocks, bond and money market?

When reading financial books,  You will come across terms below and most people have problem to differentiate them. What are the differences:-
1. equity, share and stock
2. bond and money market

Equity = the ownership interest of shareholders in a corporation

Share = any of the equal portions into which the capital stock of a corporation is divided and ownership of which is evidenced by a stock certificate; “he bought 100 shares of IBM at the market price”

Stock = the capital raised by a corporation through the issue of shares entitling holders to an ownership interest (equity); “he owns a controlling share of the company’s stock”

In very simple terms:
Let’s say Mr. Razi Misran started a business with his wife registered as Razis Sdn. Bhd.
He and his wife Azlina own the company’s shares.

When the company is listed as a public company to raise more capital, the capital raised is called “stock”. The stock certificates are issued to other investors who pay to own shares of the stock.

As Razi’s family and other investors own the shares of the company’s stock, they own the equity. Equity is the ownership of the share of a business; shares are units of the equity or stock. You can say that equity is more general than stock.

When the business remains Razis Sdn. Bhd., Mr. Razi and his wife own the shares of equity of the company, but not the stock (because the company hasn’t gone public listed).

When Razis Sdn. Bhd becomes RAZIS BHD. (already listed at Bursa Malaysia), they all own the shares of the stock of the public corporation. Stock is also the equity.

In fact, you don’t really need to be annoyed by these jargons. All you need to know is

invest in stock = invest in share = invest in equity

Bond and Money Market

Bond = a certificate of debt (usually interest-bearing or discounted) that is issued by a government or corporation in order to raise money; the issuer is required to pay a fixed sum annually until maturity and then a fixed sum to repay the principal.

Money Market = the market for short-term debt securities, such as commercial paper, certificates of deposit and Treasury bills, with a maturity of one year or less. Typically, these are safe, highly liquid investments.

Well, the main difference is that for bond, the term is longer (e.g. 3, 5, 10, 20 years etc)
For money market, the term is very short (less than a year).

Money market has the lowest investment risk. The return is also relatively low, even lower than Fixed Deposit.

 Post By Sifu: Mohd Maizan Md Nor

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