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Fixed Deposit Vs Investment Bonds – Where To Invest?


by Mahindra Finance


April 26, 2024


5 mins read


If you're looking for secure investment options with low risk, fixed deposits (FDs) and investment bonds are worth considering. Both options offer stable returns, but they have distinct characteristics that can impact your financial goals. In this comprehensive guide, we'll explore the differences between fixed deposit plans and investment bonds, helping you decide which option is better for you.

Let's dive in!

Understanding Fixed Deposits

A fixed deposit is a low-risk investment where you deposit a specific amount of money for a predetermined period at a fixed interest rate. It's an ideal choice for conservative investors who prioritise security over high returns. Here are some features and benefits of fixed deposit plans:

  • Safety: FDs provide incredible growth and maturity to your savings without being affected by market fluctuations. Banks, Non-Banking Financial Companies (NBFCs), and post offices issue FDs. Choosing institutions with high safety ratings ensures a credible investment option.
  • Higher Interest Rates: Fixed deposit interest rates are generally higher than those offered by investment bonds. This makes FDs attractive for individuals seeking better returns on their investments.
  • Flexibility: FDs offer flexible tenors ranging from 12 to 60 months. You can choose to receive periodic payouts or receive a lump sum at maturity based on your financial needs.
  • Loan Against FD: In case of urgent cash needs, you can avail of loans against your FDs instead of breaking them prematurely. This way, you can meet your financial requirements without losing out on the fixed deposit interest earned.
  • Goal-Oriented Savings: Fixed deposit plans enable you to plan and save for specific purposes, such as financing a holiday, purchasing an asset, or funding your child’s education. The returns from FD's can help you achieve these financial milestones.

To understand the potential returns from your fixed deposit investment, you can use a fixed deposit interest rate calculator. This tool allows you to estimate your interest earnings based on the principal amount, tenor, and interest rate.

Investment Bonds Explained

Investment bonds are debt instruments issued by companies or governments to raise capital. When you invest in a bond, you essentially lend money to the issuer in return for regular interest payments. Here are some features and benefits of investment bonds:

  1. Capital Appreciation: Investment bonds provide an opportunity for capital appreciation, allowing you to potentially make substantial financial gains over time.
  2. Tax Benefits: Unlike fixed deposits, investment bond returns aren't subject to tax deducted at source (TDS) or income tax. This means you can keep most of your income from interest gains without worrying about tax deductions.
  3. Flexibility: Investment bonds may or may not have flexible tenors. However, they offer the advantage of being tradable on the stock exchange, enhancing their liquidity compared to fixed deposits.
  4. Collateral: Bonds are secured by assets submitted as collateral by the issuing entity. While this provides some level of security, it's important to note that bonds are not insured.

When deciding between fixed deposits and investment bonds, it's crucial to evaluate your risk tolerance, financial goals, and expected returns.

It's important to note that while bonds offer potentially higher returns, they also carry the risk of default. In case the issuer is unable to repay the principal and interest owed to investors, there is a possibility of loss.

Scenario 1: Asha's Retirement Planning

Let's consider Asha, a 40-year-old individual planning for retirement. She has a low-risk tolerance and wishes to invest her savings in a secure option. Asha decides to compare fixed deposits and investment bonds to make an informed choice.

Upon researching various options, Asha discovered that fixed deposits provide guaranteed returns and allow her to choose flexible tenors based on her retirement timeline. Additionally, she realises that FDs issued by institutions with high safety ratings offer maximum security for her investment amount.

On the other hand, investment bonds appeal to Asha due to their potential for capital appreciation. However, she acknowledges the risks associated with default and decides that steady returns from fixed deposits align better with her retirement goals.

Scenario 2: Raj's Tax Planning

Raj is a 35-year-old salaried individual who wants to optimise his tax-saving strategies. He compares fixed deposits and investment bonds with respect to tax benefits.

After careful evaluation, Raj finds that investment bond returns are not subject to TDS or income tax, allowing him to keep most of his interest income. This makes investment bonds an attractive option for him, as he can maximise his earnings while reducing his tax liability.

While fixed deposits offer security, the tax implications prompt Raj to choose investment bonds for his tax planning needs.


Choosing between fixed deposits and investment bonds requires a thorough understanding of your financial goals, risk tolerance, and expected returns. Fixed deposits offer stability, higher interest rates, and flexible tenors, making them an ideal choice for risk-averse investors. On the other hand, investment bonds provide potential capital appreciation and tax benefits.

To make an informed decision about where to invest your hard-earned money, consider using a fixed deposit interest rate calculator to estimate potential returns. Additionally, assess your financial goals and personal circumstances before finalising your investment strategy.

Remember, Mahindra Finance offers reliable financial solutions that cater to different investment preferences. Explore Mahindra Finance's fixed deposit options and investment bonds to find the best fit for your needs. Start growing your savings with confidence today!

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