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Bonds Vs Fixed Deposits

Among all the investment options out there, bonds and fixed deposits are among the most popular with investors. This is because they are both low-risk investments that are guaranteed to pay returns upon maturity. 

 

Fixed deposits involve depositing a sum of money with a bank or financial institution for a certain period of time. You can opt for fixed or flexi rates of interest, which will also determine the returns you earn on the investment. 

 

Investment bonds refer to instruments issued by organisations, including the Government of India and the Reserve Bank of India, which act as a debt owed to the holder of the bond payable at a date in the future along with the interests due. The government-issued bonds are especially popular with investors owing to the high security and guarantee they offer. 

 

Assessing bonds vs FD in terms of which you should invest in can be difficult since they both offer such significant benefits. They are also similar in a way since they are both low-risk instruments. When you consider fixed deposits vs bonds, it can get difficult owing to this. However, it is always important to assess your own requirements in terms of investment and then choose an instrument addressing those needs. 

Fixed Deposits and Investment Bonds in India

Aside from being low-risk instruments, there are several differences between fixed deposits and bonds. Please find below a comparison of the two investment instruments. 

Feature

Fixed Deposits

Investment Bonds

Mandatory Savings

Ensured by fixed deposits

Ensured by investment bonds

Corpus

Lets you build huge corpus

Helps you build huge corpus as you cannot withdraw the funds until maturity. 

Rate of Interest

Higher interest rates

Possible to earn higher returns

Taxation Benefits

The interest earned on fixed deposits is exempt from taxation. Fixed deposits offer a few other tax advantages.

The interest earned on investment bonds is not taxable either, making it a tax-saving instrument.

Frequency of Payouts

With a fixed deposit, you can opt between receiving the interest payout at the time of maturity or in regular frequencies during the term of the deposit. 

With investment bonds, you can opt for annual, bi-annual pay-outs or opt to receive the full corpus at the time of the bond’s maturity. 

Senior Citizen Benefits

Fixed deposits offer higher interest rates for senior citizens.

Senior citizens are not entitled to any special benefits with investment bonds.

Security of Instrument

The security offered by a fixed deposit is unparalleled since the deposits are guaranteed by the government. 

Bonds offered by governments and related agencies and institutions offer bonds with the highest levels of security since they are guaranteed to pay you back by the date of maturity.

Aid During Financial Emergency

With a fixed deposit, you can avail a loan against it in case of a financial emergency.

There is no such provision with an investment bond.

Avenues for Sale

You cannot sell your fixed deposit. 

An investment bond can be sold to another individual or trader and enable you to earn profits. 

Key Differences Between Bonds and Fixed Deposits

Opting for bank bonds vs fixed deposits can often seem like a daunting prospect especially considering the high security both offer. However, there are some key differences between fixed deposits and bonds that you should consider in order to make an informed decision about which tool you wish to invest in. 

Features

Fixed Deposits

Investment Bonds

Safety of Deposit

If you select an institution with a high credit rating, the level of safety is high. 

Bonds issued by government bodies are extremely safe but it is possible they go unpaid. 

Frequency of Payout

You may select any payout frequency for your interest payments. 

Payments are fixed but investors may choose between cumulative, annual, or bi-annual payouts.

Rating

Every bank and financial institution is required to have a mandatory credit rating.

All bond issuers must get at least one credit rating.

Tax

Depending on the tax slab, tax is deducted on the interest.

There are several tax-free bonds that offer zero tax deductions. 

The most salient features of both have been listed above. Assessing the instruments via the factors mentioned above should help you make an informed decision regarding the tool you would like to invest in. 

Where Should You Invest?

As with all other investment instruments, the most important factor while picking sides in the tax-free bond vs fixed deposit debate is to see which tool aligns best with your requirements from an investment. Read on below to learn about the different factors you should consider while choosing between the investment instruments.

 

  • Both tools feature different variants that come with different tenures. As a result, investors interested in making both short-term and long-term investments can invest in these tools. Most investors are advised to diversify their portfolios by having a mix of both these investment instruments.

  • Fixed deposits are easily accessible, especially with digitalisation in the financial field, and offer complete security and guaranteed returns. On the other hand, bonds tend to offer higher returns upon maturity. However, since bonds are subject to market fluctuations, they should usually be invested only by seasoned investors.

  • It is essential to assess your requirements as well. Think about whether you require a long-term investment or a short-term investment. The goals of investors while raising a corpus through these tools can often range from their own higher education or marriage to saving up for their children’s weddings or education. Considering how soon you wish to pursue that goal will help you decide the duration or term of the investment.

  • Additionally, the investment horizon and an understanding of risk in terms of bonds vs FDs will help you narrow down your options to the ideal investment tool for your requirements. Since bonds are subject to market fluctuations, the state of the economy will play a substantial role in the returns you receive. While fixed deposits are subject to market fluctuations, the sum assured you are supposed to receive at the time of maturity will not fluctuate. Thus, the instrument offers guaranteed returns. 

Conclusion

Based on the information provided above, it is apparent that fixed deposits are tools for those who require assured safety and guaranteed returns from their investments at flexible intervals of time throughout the term of the deposit. However, for those making long-term investments who are able to withstand a higher amount of risk, bonds are a better investment instrument in the debate over bank bonds vs fixed deposits. 

 

Investing in a fixed deposit through Bajaj Markets offers you a range of benefits, including a flexible tenure ranging from 1 to 5 years. There is no maximum limit to the amount you can invest in this FD, making this an ideal savings tool.

FAQs

  • ✔️What are the benefits of an investment bond?

    The benefits of investment bonds are:

    • They are saleable

    • Some bonds attract tax benefits

    • They are secured

  • ✔️What are the tax benefits of investment bonds?

    There are tax benefits only if you invest in non-taxable investment bonds.

  • ✔️What is a fixed deposit?

    A fixed deposit is an investment tool that lets you invest a sum of money for a fixed period of time and earns you interest on the sum invested (the principal).