Understanding the Benefits of Fixed Deposits Over Bonds and Debentures

When it comes to investing your hard-earned money, the sheer variety of options can be overwhelming. The investment landscape includes various options, such as the stock market, mutual funds, bonds, debentures, FDs, and recurring deposits. Each investment instrument has its own advantages and disadvantages. However, for those seeking a low-risk investment with guaranteed returns, fixed deposits often emerge as the clear winner. In this article, we’ll explore FD benefits. We will also cover why they are often a better choice compared to bonds and debentures.

Understanding Fixed Deposits

A fixed deposit is a financial instrument offered by banks and financial institutions. In this, you deposit a lump sum for a fixed tenure at a predetermined interest rate. The key advantages of a fixed deposit account include:

• Guaranteed Returns: Unlike market-linked investments, FDs offer assured returns at a fixed interest rate.

• Low Risk: FDs are considered one of the safest investment options. You can deposit up to ₹5 lakh in it, insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC).

• Flexibility: You can choose your FD tenure, ranging from a few days to several years, based on your financial goals.

Let’s compare these benefits with bonds and debentures to understand why FDs often emerge as the preferred choice.

FDs vs Bonds

Bonds are debt instruments issued by governments or corporations to raise capital. While bonds offer the potential for capital appreciation, they also come with certain drawbacks:

As you can see, FDs provide a more stable and secure investment option than bonds. With guaranteed returns and low risk, FDs suit conservative investors and those with short to medium-term financial goals.

FDs vs Debentures

Debentures are unsecured bonds issued by companies to raise funds. While they offer higher interest rates than FDs, they also come with higher risks. Key points are:

• Credit Risk: Debentures are unsecured, meaning any collateral does not back them. If the issuing company defaults, investors may lose their money.

• Interest Rate Risk: The value of debentures is inversely related to interest rates. If interest rates rise, the value of debentures may fall.

• Liquidity Risk: Debentures are less liquid than FDs. Further, they can only be sold on the secondary market, which may not always offer fair prices.

Considering these factors, FDs emerge as a safer and more reliable investment option, especially for risk-averse investors. Moreover, the best tax saving FD can help you maximise your returns while minimising your tax liabilities.

Calculating FD Returns

One of the FD benefits is the ease of calculating returns. Let’s look at an example:

Suppose you invest ₹1,00,000 in an FD with an interest rate of 9.5% per annum for 3 years. The maturity amount can be calculated using the following formula:

A = P(1 + r/100)^n

where

A = Maturity amount

P = Principal amount

r = Interest rate per annum

n = Tenure in years

In this case:

A = 1,00,000(1 + 9.5/100)^3 = 1,00,000 x (1.095)^3 = ₹1,31,293

So, at the end of 3 years, you will receive a guaranteed maturity amount of ₹1,30,070.

You can easily calculate your FD returns using the Airtel Finance Fixed Deposit Interest Calculator.

Investing in Airtel Finance FDs

Airtel Finance offers attractive FD interest rates and a seamless investment process. You can also consider a tax saving fixed deposit for additional benefits. Here’s how you can invest in an Airtel Finance FD:

• Visit the Airtel Finance Fixed Deposit page.

• Choose your investment amount and tenure.

• Complete the online application form and submit the required documents.

• Transfer the funds to your Airtel Finance account.

• Start earning guaranteed returns on your investment.

Additionally, Airtel Finance also offers the flexibility of a loan against FD. This allows you to meet urgent financial needs without breaking your FD.

Conclusion

In the investment world, fixed deposits emerge as a clear winner for those prioritising safety, guaranteed returns, and low risk. Knowing the benefits of fixed deposits over bonds and debentures helps you make informed decisions for a secure future. With attractive interest rates and a simple investment process, Airtel Finance FDs offer a convenient and reliable investment option. Calculate your potential returns using the Airtel Finance Fixed Deposit Interest Calculator, and start investing today!

FAQs

1. Which is better: FD or debentures?

FDs are generally considered better than debentures due to their lower risk, guaranteed returns, and higher liquidity. Debentures carry credit risk and may not offer assured returns.

2. Bonds Vs Fixed Deposits: Which is better for you?

The choice between bonds and fixed deposits depends on your risk appetite and financial goals. FDs are better for risk-averse investors seeking guaranteed returns. Meanwhile, bonds may suit those willing to take higher risks for potentially higher returns.

3. Why are fixed deposits considered safer than bonds and debentures?

Fixed deposits are considered safer because they offer guaranteed returns and are insured up to ₹5 lakh by the DICGC. Besides, they carry lower credit risk compared to bonds and debentures.

4. What is the risk of losing money with bonds or debentures compared to fixed deposits?

Bonds and debentures carry higher credit risk compared to fixed deposits. If the issuing entity defaults, investors may lose their money. In contrast, FDs offer assured returns and are insured up to ₹5 lakh, making them a safer investment option.

5. Can I withdraw my money from a fixed deposit before maturity?

Yes, you can withdraw your money from a fixed deposit before maturity. But it may incur a penalty, and you may receive a lower interest rate.