What are Bonds?

Bonds are a type of debt instrument used by companies and government bodies to raise funds in order to fund ongoing operations, new projects, acquisitions, etc.

Bond issuers borrow money from investors for a particular tenure, in exchange for periodic interest payments (monthly, quarterly, or annually). At the time of maturity, the investor is also re-paid the principal amount. The interest rate can be either fixed or floating, based on the terms of the contract between the issuer and the lender. 

Bonds are generally less risky than equities, making them an important component of a well-diversified investment portfolio. However, they are not entirely risk-free as they carry inflation risk, credit risk and interest rate risk. 

What are Fixed Deposits?

Fixed deposits (FDs) are provisions in which investors invest a fixed sum of money for a specified period to earn a pre-fixed return. FDs are provided by banks, post offices and non-banking financial companies. They offer a fixed rate of interest for a fixed tenure. 

At the maturity of FD, the investors are paid the interest and the principal. FD comes with the flexibility of easy withdrawal at any time. However, premature withdrawal is subject to penalty charges or reduced interest rates.