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Is it better to invest in bonds than bank FDs? Know the complete details here before depositing money

Sagar Patel

By Sagar Patel

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It has been three months for the financial year 2024-25. Now people are gearing up to file their Income Tax Return (ITR). Its last date is July 31. While some employed people are busy calculating their income tax, there are some who are also exploring new investment avenues, through which they can earn more from traditional income sources like bank fixed deposits (FDs), apart from saving taxes. For taxpayers who are willing to take some risk, bonds can be a better option than bank FDs. According to tax and investment experts, the interest on bank FDs is around 6-7 percent, while the interest on bonds is around 9 percent, which is more than the interest on bank FDs. Let us understand in 5 points why bonds are the best option?

This is the specialty

  1. Bonds offer higher returns than bank FDs. Fixed deposits offer fixed interest rates, which are low due to their low-risk nature. On the contrary, corporate bonds typically offer higher interest rates, offering investors better returns for the additional risk.
  2. Bonds can be more tax-efficient than FDs. The interest received on FDs is fully taxable as per the investor’s income tax. However, some bonds, such as municipal bonds, provide tax-free interest income. Also, capital gains on long-term bonds can benefit from indexation, thereby reducing the overall tax burden.
  3. Bonds generally provide better liquidity than FDs. While FDs typically have a lock-up period during which premature withdrawals can attract penalties, bonds can be traded on the secondary market, allowing investors to manage their holdings more efficiently and potentially at a better price.
  4. Bonds are a reliable means of regular income, received through periodic interest payments, known as coupon payments. This feature makes it an attractive option for retirees and those looking for a steady cash flow. Unlike FDs, where interest is usually paid on maturity, bonds can provide a consistent regularity of income over their tenure.
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  6. Bond markets provide opportunities to meet different risk appetites and investment objectives. Investors can select bonds that suit their financial goals and market outlook, from government securities to corporate bonds and other options. Bonds are influenced by current market conditions, such as falling interest rates.
Sagar Patel

Sagar Patel

I am Sagar Patel, specializing in business news reporting. With a keen focus on economic trends, market analysis, and corporate developments,

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