Fixed Deposits & Bonds

Fixed Deposit

FD is a financial instrument provided by banks which provides investors with a higher rate of interest than a regular savings account, until the given maturity date. It may or may not require the creation of a separate account. They are considered to be very safe investments.

Term deposits in India is used to denote a larger class of investments with varying levels of liquidity. The defining criteria for a fixed deposit is that the money cannot be withdrawn from the FD as compared to a recurring deposit or a demand deposit before maturity. Some banks may offer additional services to FD holders such as loans against FD certificates at competitive interest rates. It's important to note that banks may offer lesser interest rates under uncertain economic conditions. The interest rate varies between Bank to Bank and depends on tenure. The tenure of an FD can vary from 7, 15 or 45 days to 1.5 years and can be as high as 10 years.

Bonds

A bond is a debt investment in which an investor loans money to an entity (typically corporate or governmental) which borrows the funds for a defined period of time at a variable or fixed interest rate. Bonds are used by companies, municipalities, states and sovereign governments to raise money and finance a variety of projects and activities. Owners of bonds are creditors, of the issuer.

Characteristics of Bonds

• Face value is the money amount the bond will be worth at its maturity, and is also the reference amount the bond issuer uses when calculating interest payments.
• Coupon rate is the rate of interest the bond issuer will pay on the face value of the bond, expressed as a percentage.
• Coupon dates are the dates on which the bond issuer will make interest payments. Typical intervals are annual or semi-annual coupon payments.
• Maturity date is the date on which the bond will mature and the bond issuer will pay the bond holder the face value of the bond.
• Issue price is the price at which the bond issuer originally sells the bonds.