Investing your hard-earned money can be hectic some times. Investing in both bonds and FD’s require caution and evaluation of the pros and cons. The success of any of these depends on how well it suits you.
Fixed deposit requires saving a fixed amount of money for a particular time. Fixed deposit is similar to bonds in the sense you have to invest money for a specified period. Also, a fixed deposit offers higher interest rates as compared to that of bonds. Enlisted below are some differences which help you to choose the best option for you to invest your money.
- Bonds are more secured:
Most Bonds are indeed secured in nature, as they have physical assets as a backup. If the business goes bankrupt and assets get liquefied, the bondholders are paid first. Whereas, fixed deposits are not secure as they don’t have any physical assets, but are secured with insurance of Rs. 1.00,000
Bonds are fluid as are tradable on exchange. Bond prices can change due to interest rate moments. However, a fixed deposit can be withdrawn before it is mature, and they cannot be transferred. Premature withdrawal of an FD reduces the interest rate.
- Tax benefits:
Tax on the interest from bonds and fixed deposits depends upon the annual income of the investor. However, there are tax-free non-transferable bonds issued by the government in which there is no tax on the interest amount whereas, in the fixed deposit, tax on the interest depends on the tax slab of the investor.
Both FD’s and Bonds offer a fixed payout after a certain amount of time. However, bonds offer additional capital earning gains, as bond price changes depending on the interest rate of the market. But FD’s are non-transferable and don’t provide any capital gains.
- Tax deduction at source:
In a bond, there are no TDS applicable on interest amount whereas on fixed deposit tax deduction at source is applicable if interest amount exceeds Rs 5,000.
- Credit rating:
A bond issuer needs to get their instruments rated by at least one of the rating agencies such as CRISIL. Rating is useful as it helps an investor to quickly evaluate the returns on the risks they are willing to take. Whereas in fixed deposits which are issued by NBFC must be rated.
- Interest rate:
The fixed deposit provides higher interest rates as compared to bonds. FD’s offer extra benefits to senior citizens as it allows an additional interest rate of up to 0.5% making it the best option for senior citizens with higher rewards and fewer risks.
Before investing, you should know about your requirements and risks you are willing to take. Due to the highest FD interest rate, it is the best option to invest your money in a fixed deposit. If you are looking for short term investment, bonds are the best option for you to invest in.