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What is the difference between a Bond and a Fixed Deposit?

by Sarah William

A good investment fund can provide you with financial stability in your life. Investing in an investment fund is the key to achieving financial stability. Any investment tool’s performance depends on its ability to meet the individual investor’s needs. A bond and a fixed deposit are both saving instruments with fixed rates of return – both contribute to a diversified portfolio. 

Overview of Fixed Deposit

There are various investment options available from banks that allow the need of both short-term and long-term investors. To know what is FD and what are its benefits, then you should know that there are a variety of benefits associated with fixed deposits that are worth considering. One of the best things to know about investing in fixed deposits is that you will receive a guaranteed return on your investment and you can calculate your maturity amount in advance using a fixed deposit calculator. In addition to that, fixed deposits are tax-free investments. If you have invested in a fixed deposit, you may be able to qualify for a loan based on what you have invested. When an emergency arises, you may be able to close your Fixed Deposit and withdraw your funds as soon as possible.

Overview of bonds

Bonds are a type of debt instrument used by borrowers to raise funding from investors. In the primary market, several entities issue bonds for different projects, such as municipalities, governments, and corporations. When the issuer collects the funds, it uses them for financing business operations or infrastructure development. It is also possible to purchase bonds at face value or the principal value by investors. There is an interest rate against the same that the issuer offers at a fixed rate or an adjustable rate. As an additional benefit, the investor who acquires bonds will have legal and financial claims to the debt fund of the issuing entity. Therefore, after the bond term expires, the investor will receive the total face value of the bonds.

Here are the key difference between Bonds and Fixed Deposits


The value of bonds can be expressed as more fluid since they are exchangeable on trades. Despite this, it is essential to remember that interest rate developments can affect the price of bonds, so liquidity comes at the expense of price volatility. In contrast, fixed deposits can also be easily withdrawn – even though they are not exchanged on the trade. 


A bond and the FD are two instruments that offer a fixed payout at predefined periodicities. Nevertheless, Bonds also provide the opportunity to obtain capital gains since Bond prices fluctuate based on either market interest rates or the guarantor’s creditworthiness. On the other hand, the FDs are not tradeable and do not offer a comparable degree of acquiring capital gains. However, the bond exchange isn’t everyone’s favorite, and an ignorant investor without a satisfactory knowledge of the obligations market will face a significant challenge when exchanging bonds.


Understanding that most bonds are backed by actual assets back them is essential. However, suppose the credit rating of the responsible element weakens. In that case, a bondholder may not receive adequate interest and payouts – so before knowing what is FD and what is Bonds, it is prudent to check credit ratings and to stick to AAA, AA, and A graded bonds only. The bondholders stand first in the pecking order in the unlikely event that the organization fails and its assets must be traded for survival. FDs, however, are unstable and cannot be supported by any assets.

Credit Rating

Bond issuers must have their instruments evaluated by a rating agency, such as CARE, ICRA, or CRISIL. Therefore, they will ordinarily not be able to offer a rating without satisfactory information about the organization unknown to the general public. There is a requirement in place for FDs given by NBFCs to undergo an appraisal; however, bank FDs need not undergo an appraisal at all. The rating system is helpful as it enables new bond investors to quickly assess the returns on offer while simultaneously taking on the risk they will be assuming.


A Bond’s interest is subject to income tax, just as that from an FD’s interest depends on the individual’s income tax slab. However, non-tax bonds issued by the government do not impose income taxes. Instead, the capital gains tax will be charged if you decide to sell your bonds on a trade before the maturity date.


The best part is that Fixed Deposit maturity amounts can also be calculated in advance with the help of a fixed deposit calculator. Nevertheless, bonds are a more suitable investment instrument for long-term investments. 

They can handle a greater risk than fixed deposits for those making long-term investments. Passive income is essentially income you can generate without working, so investing can be a great way to generate income. So, after getting all the information about what is FD and what is Bonds, it is clear that a fixed deposit is an instrument for those who want guidance and assurance that they will receive a return on their investments over time over their deposits term. 

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