Bonds vs Fixed Deposits (FD) – Which is Better Investment Option

Confused between choosing fixed deposit or investment bonds for your investment portfolio? Here’s a comprehensive guide to understand the differences.
4 mins
1 June 2024

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.

Pro tip

Enjoy higher interest rate with Bajaj Finance Digital FD. Unlock returns of up to 8.85% p.a. by investing for 42 months via our website and app.

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

What are investment bonds?

Investment bonds in India are debt instruments issued by companies or governments to raise capital. These bonds are essentially a loan made by the investor to the issuer and offer a fixed interest rate that is paid periodically. Bonds are considered a low-risk investment option as they provide a predictable return on investment. However, there is still a risk of default, which means the issuer may not be able to repay the principal and interest owed to the investors. In India, investment bonds can be issued by the government, public sector undertakings, banking and financial institutions, and corporations. Overall, investment bonds can be a suitable investment option for those who prioritize safety and predictability over potential high returns.

Features and benefits of investment bond

An investment bond is also an excellent option for those looking to reap tax benefits and grow their savings. Read on to know more.

  • These bonds provide scope for capital appreciation so that you can make substantial financial gains
  • The interest rate on these bonds is much lower than that offered by fixed deposits
  • The returns from investment bonds aren’t subject to TDS or even tax. This means that you can keep most of your income from the interest gains without planning for tax deductions
  • These bonds can be sold to another party later
  • Investment bonds may or may not have flexible tenors
  • These bonds do not let you choose the frequency of your returns. Instead, there is a fixed time when your returns will be paid to you
  • Bonds are secured but not insured. This means that you do not have absolute safety. In case a bond goes unpaid, you only have rights over the assets submitted as collateral

So, if you seek an investment option that is secure and gives assured returns, a fixed deposit is an ideal investment option. Bajaj Finance Fixed Deposit is an excellent option for growing their savings in a safe avenue.

Here’s what makes a Bajaj Finance FD a preferred option to grow your savings:

  • Highest safety ratings of CRISIL AAA/STABLE and [ICRA]AAA(Stable)
  • Lucrative interest rates up to 8.85% p.a.
  • Flexible tenors ranging from 12 to 60 months, with the option to receive pay-outs periodically or at maturity
  • End-to-end paperless online FD process to enable you to invest from the comfort of your home
  • Monthly savings option with Systematic Deposit Plan that enables you to save with just Rs. 5,000 per month and grow your savings easily

You can easily calculate the interest returns with the help of Bajaj Finance FD Calculator.

By investing in a fixed deposit, you can get assured returns without market forces. Make a wise investment choice with Bajaj Finance online FD and grow your savings effortlessly.

Fixed Deposits vs Investment Bonds

Aspects

Bonds

Fixed Deposits

Definition

It is a financial means through which companies and government bodies raise funds for their operations. The investors get regular interest income, and the principal amount is usually payable on maturity. 

It is a financial instrument where the investor deposits money for a specific period to earn a predetermined interest rate.

Issued by

Bonds are issued by municipalities, state governments, central governments, private companies, and PSUs.

FDs are provided by post offices, banks, and Non-banking Financial Companies (NBFCs).

Liquidity

Listed Bonds are traded on the stock exchange, which enhances their liquidity. 

Investors are free to withdraw the FD before maturity. But, such withdrawal leads to reduced interest rates or penalty charges. 

Frequency of payout

Investors are not free to choose the frequency of payout as dictated by the bond’s term structure.

Investors are free to choose the frequency of payout.

Returns

Bonds generally offer higher returns than FDs.

FDs offer a fixed return on investment.

Frequently asked questions

What is the Digital FD offered by Bajaj Finance?

Bajaj Finance has launched a new FD type called "Bajaj Finance Digital FD" for a period of 42 months. Bajaj Finance is providing one of the highest interest rates of up to 8.85% p.a. for senior citizens and for the customers below the age of 60 they are providing up to 8.60% p.a. The Digital FD can be booked and managed only through the Bajaj Finserv website or app.

What is the difference between a bond and a deposit?

Bonds are debt securities issued by entities to raise capital, while deposits typically involve individuals or institutions depositing money with a financial institution for a fixed term, usually with interest.

Which is better - corporate fixed deposit or corporate bond fund?

The choice between a corporate fixed deposit and a corporate bond fund depends on individual risk tolerance and financial goals. Fixed deposits offer fixed returns with lower risk, while bond funds provide diversification but can be subject to market fluctuations.

Which mutual fund is best large, mid, or small cap?

Bonds represent debt instruments issued by entities, fixed deposits involve depositing money with financial institutions for a fixed term, and debt mutual funds pool investors' money to invest in a diversified portfolio of debt securities, offering varying risk and return profiles.

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Disclaimer

As regards deposit taking activity of Bajaj Finance Ltd (BFL), the viewers may refer to the advertisement in the Indian Express (Mumbai Edition) and Loksatta (Pune Edition) furnished in the application form for soliciting public deposits or refer https://www.bajajfinserv.in/fixed-deposit-archives
The company is having a valid Certificate of Registration dated March 5, 1998 issued by the Reserve Bank of India under section 45 IA of the Reserve Bank of India Act, 1934. However, the RBI does not accept any responsibility or guarantee about the present position as to the financial soundness of the company or for the correctness of any of the statements or representations made or opinions expressed by the company and for repayment of deposits/discharge of the liabilities by the company.

For the FD calculator the actual returns may vary slightly if the Fixed Deposit tenure includes a leap year.