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Difference Between Fixed Deposit & Bonds
Posted on Friday, October 25th, 2024 | By IndusInd Bank
If you are looking for a secure and reliable investment option, two options that you can consider are Fixed Deposits (FDs) and bonds. These instruments help grow your money with varying degrees of risk, return, and flexibility. However, understanding the different aspects of each investment option is important.
Let’s explore the nuances of bonds vs FDs and go through their differences to help you make informed investment decisions.
What are Fixed Deposits?
- A Fixed Deposit (FD) is a popular low-risk investment option available from banks and financial institutions.
- With an FD, you park a lump sum amount for a set tenure at a fixed interest rate, which remains the same throughout the tenure. This helps you have a clear picture of expected earnings.
- An investor can choose a tenure that suits their preference, with options ranging from 7 days to 10 years.
- Opening and managing a fixed deposit account is easy. When the FD matures, you can opt for auto-renewal to ensure continuous earnings.
With IndusInd Bank, opening a Fixed Deposit Account just takes 4 steps. Simply choose the ‘Open Deposit’ option, enter the required details, and add the funds. Start enjoying high interest rates with IndusInd Bank’s FD now!
Also Read: Smart Ways to Diversify your Portfolio with Fixed Deposits
Let’s look at bonds in detail as well, to better understand FDs vs bonds.
What are Bonds?
- Bonds are debt securities issued by corporations, municipalities, or governments with the intention to raise capital.
- When you purchase a bond, you lend money to the entity that issues the bond. In exchange, you receive periodic interest payments and the return of the bond’s face value upon maturity.
- With bonds, you receive regular interest (coupon) payments, which can be fixed or variable.
- The risk with investing in bonds depends on the issuer’s creditworthiness. Government bonds are generally considered low risk, while corporate bonds may carry higher risk. Bonds issued by entities with higher credit ratings are preferable to low-credit rating bond issuers.
Now that we have a basic understanding of bonds vs FDs, let’s delve into a detailed comparison of their differences.
Difference Between Fixed Deposit & Bonds
Here is a table describing the key differences between bonds and FDs:
| Parameter | Fixed Deposits | Bonds |
| Risk and Return | Offer low risk with guaranteed returns. | Risk varies with the issuer’s credit rating. Government bonds are low-risk; corporate bonds can offer higher returns, but carry higher risk. |
| Interest Rates | FD interest rates are fixed and known at the time of investment. | Interest rates can be fixed or variable. |
| Liquidity | Less liquid due to fixed tenures and penalties on premature withdrawals. | More liquid, as they can be sold in the secondary market before maturity. However, this may involve capital gains or losses. |
| Tax Implications | The investment amount is subject to deductions under Section 80C. However, interest earned on FDs is taxable. | Interest on bonds is also taxable, but certain government bonds may offer tax exemptions. Capital gains tax may apply as per the holding period. |
| Investment Amount | Suitable for small to medium-sized investments; come with a low minimum deposit limit in many banks. | Often require a higher minimum investment. |
These were some basic differences between a bond and an FD. For detailed guidance that suits your specific goals, you can consult a financial advisor.
Conclusion
In essence, what to choose, a bond vs fixed deposit, depends on your individual financial goals, risk appetite, tax-saving strategy, and investment horizon.
If a fixed deposit is what suits your financial needs, then opening an FD with the right banking partner is important. With IndusInd Bank, you enjoy high interest rates, a safe and steady investment experience, an easy booking process, and much more!
Book a Fixed Deposit with us and start enjoying high bank FD interest rates now!
Disclaimer:
The information provided in this article is generic and for informational purposes only. It is not a substitute for specific advice in your circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any financial decisions based on the contents and information.
