FDs are investment options offered by banks and other financial institutions. They offer a fixed rate of interest on the invested amount, and the interest rate remains the same throughout the tenure of the FD. FDs are considered low-risk investments, and are suitable for investors who want to generate a fixed income from their investments. The invested amount is locked in for a fixed period of time, and premature withdrawal may result in a penalty.
Bonds are debt instruments issued by companies or the government. They offer a fixed rate of interest on the invested amount, and the interest rate remains the same throughout the tenure of the bond. Bonds are considered low-risk investments, and are suitable for investors who want to generate a fixed income from their investments. The tenure of a bond ranges from a few months to several years, and the invested amount is returned to the investor at the end of the tenure.
Both FDs and bonds are considered low-risk investments, as they offer a fixed rate of return and are not subject to market fluctuations. They are suitable for investors who want to generate a fixed income from their investments, and are not interested in taking risks. However, the rate of return offered by FDs and bonds is generally lower than what is offered by other investment options like stocks and mutual funds.
There are several types of bonds available for investment, including government bonds, corporate bonds, municipal bonds, zero-coupon bonds, convertible bonds, high-yield bonds, gold bonds, and sovereign gold bonds.
Capital Gain Bonds
Capital gain bonds provide individuals or HUFs in India with a tax exemption on long-term capital gains. These bonds are issued by government entities and allow taxpayers to reinvest their capital gains from the sale of assets like real estate or stocks. By investing in these bonds within a specified time frame, individuals can defer the payment of capital gains tax and potentially reduce their tax liability. The bonds have a lock-in period during which the invested amount cannot be redeemed or transferred. The tax exemption provided by these bonds is subject to certain conditions and limits set by the government.
These bonds are issued by the government and are considered to be the safest investment option. Government bonds are also known as sovereign bonds. These bonds are backed by the government's full faith and credit, which means that the government promises to pay the bondholder the principal and interest on the bond. Government bonds are available in different tenures such as short-term, medium-term, and long-term.
These are issued by companies to raise capital. Corporate bonds offer higher returns than government bonds, but they also carry higher risk. The creditworthiness of the issuing company is an important factor to consider while investing in corporate bonds.
These are issued by state and local governments to fund public projects. Municipal bonds offer tax-free income to investors. The interest income earned from municipal bonds is exempt from federal income tax and sometimes from state and local taxes as well.
These are bonds that do not pay interest but are sold at a discount to their face value. The investor receives the face value of the bond at maturity. Zero-coupon bonds are suitable for investors who want to invest for a longer-term and want to receive a lump sum at maturity.
These are bonds that can be converted into equity shares of the issuing company. Convertible bonds offer investors the potential for capital appreciation along with regular interest income.
These are bonds that offer higher returns than other types of bonds, but they also carry higher risk. High-yield bonds are issued by companies with lower credit ratings and are also known as junk bonds.
These are issued by the Government of India and are denominated in grams of gold. Gold bonds offer investors the opportunity to invest in gold without the need to hold physical gold. Gold bonds offer interest income along with capital appreciation based on the prevailing market price of gold.
Sovereign Gold Bonds
These are government securities denominated in grams of gold. These bonds are issued by the Government of India and are traded on stock exchanges. Sovereign Gold Bonds (SGBs) offer investors the opportunity to invest in gold without the need to hold physical gold. The minimum investment in SGBs is one gram of gold, and the maximum investment is four kilograms for individuals.