Bonds Vs Fixed Deposits Vs Post Office Schemes: Liquidity, risks and returns compared!
The decision to invest in bonds or fixed deposits or post office schemes should be made after analysing several factors like one’s risk appetite, investment goals, liquidity situation and investment horizon. A bondholder earns money in two ways – through coupon payments and appreciation or depreciation of the instrument in the secondary market.
Fixed deposits earn you a fixed rate of interest on a lump sum money parked with a bank or an NBFC for a predetermined period.
The third instrument is post office schemes, also called small saving schemes. Post office offers schemes like Kisan Vikas Patra, National Saving Certificate and Post Office Saving Account, among several others. These schemes are considered risk-free and dependable by most investors.
Also read: Good news for fixed-income investors! Now you can buy bonds for just Rs 10,000
Bonds offer high returns but entail additional risk. FDs, on the other hand, offer relatively lower but guaranteed returns.
Vishal Goenka, Co-Founder of IndiaBonds.com, compares in the below table bonds, FDs and post office saving schemes based on three parameters liquidity, risks and returns.
Goenka said once-prominent bank FDs are archaic now; with inflexible options, lock-ins, penalties and usually high rates available only for short term. Consequently, investing in bank FDs lacks viability, he added.
“Regarding RBI floating rate bonds, the 8.05% yield is enticing, yet committing for a seven-year lock-in period restricts liquidity, despite the attractive yield. These bonds lack tradability and exhibit limited liquidity. Investors considering this option should possess a seven-year horizon without requiring immediate access to funds,” he said.
In contrast, G-Secs offer superior
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