There is a fair amount of overlap between certificates of deposit (cds) and bonds; they are both fixed-income securities, which you generally hold on to until maturity. Simply put, you put your money into a CD or bond for a set period, and you know exactly what you will receive when that time is up.
ATON advices on benefits of Bonds and deposits
- Taxation: Interest earned from investments is often eligible for taxation. However, investors do not have to pay any tax on the interest earned through tax-free bonds. Thus, after-tax returns are higher for the tax-exempt bond. They also have a lower risk of default, as these companies are usually Government-backed entities.
- High Post Tax Returns: As the interest is Tax Free, investors get higher post tax returns as compared to fixed deposits.
- Liquidity: Listing of bonds on various exchanges provides liquidity to your investments.
- Electronic access: Option of holding bonds in 'demat form' makes your investments easy to handle and monitor.
- Credit rating: Agencies like CARE, FITCH, CRISIL, ICRA regularly asses companies and their financial health. They then issue a credit rating. Higher the rating, better the financial health. These agencies also issue credit ratings to tax-free bonds. This enables you to assess the quality of instruments.