Bonds Versus Fixed Deposits....

Today let us discuss about "Bonds Versus Fixed Deposits".
What is the difference between Bonds & Fixed Deposits? And which financial product is more safe - Bonds or Fixed Deposits?

Bonds means when Government of India takes a Debt(Loan) from you and issue a Security(Bond Paper)Certificate to you than it is known as Bonds.

While Fixed Deposits means when a Bank (Nationalised or Private Sector) or Financial institute takes a Debt(Loan) from you than it is known as Fixed Deposits.

So you will think that why Government or Banks take loan from me? Am I so wealthy? Well of course yes.It is not only you/Individual who is taking loan from Banks. Government and Banks also need money to finance their various projects and Capital Requirements.So Whenever the Government or Bank issue you a Bond or Fixed Deposit Certificate it means that Government or Bank is your Borrower and you are its Lenders.

But the term Bond is specifically preserved for Government debt purpose.

Technically Bonds & Fixed Deposits both are the same type of financial Products but the Only difference between them is "Safety of your Principal".

What is the difference between Bonds & Fixed Deposits?

Well,Technically nothing. Both are same kind of Financial products by which Govt. or Bank borrows money from you(Public).

But the only difference between them is Bonds are 1 or 2 grade safer than Fixed Deposits (Weather it is Nationalised Bank or it is a Private Sector Bank).

Second difference is rate of return of these 2 financial products.

As Bonds are offered by Government and it is assumed by default that Govt. Never defaults in its payment so Bonds offer you slightly low Yield.Currently in India Bonds are offering 8.5% Per Annam Interest.

While Banks (Nationalised & Private) may sometimes defaults so in Fixed Deposits offer you slightly higher Yield than Bonds. Currently in India Fixed Deposits are offering 9-10% Per Annam Interest.

So Remember,Safer the Financial Product less will be the Yield and Riskier the Financial Product the higher will be the Yield because you are taking a risk of default so you should be rewarded with higher return......!!!!!

So Where to Park your Money - Bonds or FDs?

Well both.You should invest some amount of Money in Bonds for safety of your Principal and some amount of Money in Bank Fixed Deposits to Enjoy superior returns than Bond by taking 1 grade higher risk than Bonds (That is a minimal Risk)....!!!!