With bonds, a company, a state, or an institution is provided with
money for a certain amount of time in the form of so-called debt
capital. You do not become a co-owner, but a creditor of the
company, as with a loan that is repaid at the end. In return, you
receive predefined interest (coupons) over the loan term.
The interest rate can vary depending on the risk. Because the interest rate is fixed at the beginning of the term, the company’s success is much less relevant than with shares. Bonds are less risky than equities, but their so-called return success is also limited. If the company becomes insolvent, debt capital is serviced before equity capital from the insolvency estate. This means that the probability of getting money back is higher than if you own shares in the company.
Do you find the explanation helpful?