Fixed-income instruments such as fixed deposits (FDs) and investment bonds are highly popular among investors with low-risk tolerance seeking secure investment options. Though similar in nature, they vary in terms of several aspects. As an investor, it is crucial to gain a thorough understanding of these instruments and invest accordingly based on your financial objectives and risk tolerance. Let’s understand the necessary knowledge to make an informed decision in selecting the right investment option for you.
Should you invest in a fixed deposit or an investment bond?
The success of any investment tool depends on how well it meets your requirements. When planning to invest in a fixed deposit or an investment bond, it is essential to evaluate the advantages and disadvantages of both these investment avenues. Both FD and investment bonds are fixed-income savings instruments. While FD interest rates are higher than investment bonds, investment bonds offer more tax benefits.
What is Fixed Deposit?
A fixed deposit, or FD, is a type of investment where money is deposited for a fixed period of time at a fixed interest rate. It is a very low-risk investment option where the amount invested grows over time due to the compounding of interest. FDs are offered by banks, and other financial institutions and are considered a secure investment option for conservative investors.
Features and benefits of fixed deposit
For those looking to grow their savings in a safe investment avenue, a fixed deposit is a preferred tool with A fixed deposit is an ideal tool for those looking to expand their savings in a safe investment avenue.
- They provide incredible growth and maturity to your savings without being affected by market fluctuations
- FD is an ideal option for senior citizens, who can also benefit from higher interest rates
- Banks, NBFCs and post offices issue FDs. If you’re looking for a strong balance of safety and returns, it is best to choose FDs issued by institutions with high safety ratings, making them a credible investment option
- Fixed deposit enables you to meet urgent cash needs, with facilities such as loans against FD
- They can help you earn more from your savings as compared to a savings account
- FD enables you to choose the frequency of returns. For example, if you want monthly returns, you can apply for a non-cumulative fixed deposit, whereas to receive lumpsum interest, you can apply for a cumulative fixed deposit
- The returns from fixed deposits can be used for various purposes like financing a holiday, purchasing an asset or even funding your child’s education