Bond yield in bank FD continues to return around 9%
Business: Business, Bank FD vs Bond Yield: Three months into the new financial year, people are preparing to file their income tax returns (ITR). While earning individuals are busy calculating their income tax payments, they are also looking for avenues that can help them save on their income tax payments and earn more from traditional sources of income like bank fixed deposits (FDs). Bonds can be a better option for such taxpayers who are willing to take some risk compared to the risk-free bank FDs. According to tax and investment experts, the interest on bank FDs is around 6 per cent while the interest on bonds is around 9 per cent, which is 50 per cent higher than bank FD interest. They said that both have a lock-in period, but the income from bond yield is exempt from income tax. Speaking in favour of bonds, Pratik Toshniwal, Co-founder, MI Capital Services, said, “While both bonds and fixed deposits are attractive investment options in India, in my opinion, the former have certain advantages over the latter. For instance, bonds typically offer much higher interest rates than fixed deposits. Bonds with a lock-in period can offer returns of up to 9%, which is much higher than the interest rate on fixed deposits.” Highlighting the income tax benefits for bond investors, Pratik Toshniwal said, “Another reason to invest in bonds is their tax implication.
Bond income is not subject to taxation or TDS. However, as per the Income Tax Act of 1961, interest earned on fixed deposits is considered as ‘income from other sources’ and is taxed accordingly. Apart from these, investors can sell their bonds to capitalise on capital appreciation opportunities, an option not available to fixed deposit account holders.” Highlighting the benefits that bonds offer to an investor apart from income tax, Vaibhav Shah, Fund Manager, Torus Oro PMS said,
Bond Composite Debt “Bonds provide the necessary diversification as a part of the overall debt allocation. While FD rates vary in a defined range, bonds provide a much greater opportunity to leverage interest rates across tenures and ratings. Bonds also offer a liquidity advantage where it can be redeemed in the OTC market compared to FDs which incur breakage charges. Long-term bonds that companies raise for capital expenditure generally have good yields and thus enhance overall returns
