Fd/Bonds

Introduction of Fd: A fixed deposit (FD) is a financial instrument provided by Indian 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. It is known as a term deposit or time deposit in Canada, Australia, New Zealand, and the US, and as a bond in the United Kingdom. They are considered to be very safe investments. Term deposits in India are 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 The defining criteria for a fixed deposit is that the money cannot be withdrawn for the FD as compared to a recurring deposit or a demand deposit before maturity.

Introduction of FD Bonds: A bond is a negotiable debt security under which the issuer borrows a given amount of money, called the principal amount. In exchange, the borrower agrees to pay fixed amounts of interests, also called the coupons, during a specific period of time. Everything is well defined by the bond contract: the coupon rate is the interest rate that the issuer pays to the bondholder and the coupon dates are the dates on which the coupons are paid. Besides, the issuer will repay the total amount of the principal when the bond reaches what is called maturity (or maturity date). In short, a bond is a securitized loan.

Why should buy?

Bond funds make bond investing easy for average investors. Investing in bonds profitably could soon be a different story. Now you know bond investing basics. Few average investors actually invest in individual bond issues like XYZ above. Instead, millions of people invest in bond funds, which pool investor money and manage a collection (portfolio) of these securities. As a bond fund investor, you can receive interest income periodically or have dividends reinvested to buy more shares.

For whom it is suitable?

It is important to consider how soon you will need the money, whether it is for a vacation, a new home, or retirement. Also, consider the liquidity of the bond and if there is a market to sell it before the maturity date. Additionally, be aware of early redemption features, credit quality, interest rates, and the price of the bond before investing.

What are the Risks?

  • Risk #1: The economy - Economic downturns can affect investments. Long-term investing helps mitigate this risk.
  • Risk #2: Inflation - Inflation erodes the value of money. Diversifying investments is key to protecting against it.
  • Risk #3: Market Value - Market fluctuations can impact investments. Diversifying between different sectors helps manage this risk.
  • Risk #4: Becoming too conservative - Being overly cautious may hinder investment goals. Balancing risk and reward is crucial for growth.
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