FD vs Bonds: Where Will ₹10 Lakh Give Maximum Returns in 5 Years?

For decades, fixed deposits (FDs) have been considered the safest way for Indians to grow their savings. Deposit money in a bank, earn guaranteed interest, and withdraw the amount once the tenure ends. However, the scenario is changing. Even though FDs are secure, they now offer relatively lower returns, making bonds an increasingly attractive alternative.

Why Are FDs Losing Their Appeal?

FDs have long been favored for their low risk and stable returns. But current interest rates often fail to beat inflation. For instance, SBI offers 6.75% interest on FDs of less than 2 years, which is often equal to or lower than the prevailing inflation. This means that money in FDs may lose its real purchasing power over time, making them less effective for long-term wealth creation.

Bonds: A Reliable Alternative

A bond is essentially a loan you give to a company, government, or institution, which promises to pay regular interest and return the principal at maturity. Unlike stocks, bonds provide fixed income.

• Government and AAA-rated corporate bonds are considered highly secure.

• Bonds can offer higher returns than FDs, depending on credit rating and tenure.

• Investors can also sell bonds on NSE or BSE before maturity, providing liquidity unlike traditional FDs.

Potential Returns

Contrary to popular belief, bonds are not always risky. Government bonds and high-rated corporate bonds provide stability and often outperform FDs. Investors with moderate risk appetite can consider AAA to BBB- rated corporate bonds, which may offer 7% to 14% annual returns.

Example:

• Investing ₹10 lakh in a 5-year SBI FD at 6.05% interest will grow to approximately ₹13.40 lakh after five years.

• The same ₹10 lakh in a corporate bond portfolio with an average 10% annual return could reach around ₹16.38 lakh in five years.

This means bonds can potentially offer an extra ₹3 lakh without significantly increasing risk.

Why Bonds Are Emerging as the New FD

With rising inflation and stock market volatility, bonds are becoming a balanced investment option. Platforms like Jiraaf now allow small investors to buy SEBI-registered bonds online, making investment easier and more accessible. The key is to understand bond credit ratings and tenure to make informed choices.

Final Take:
While FDs remain a safe option, bonds are increasingly becoming the smart choice for long-term wealth creation, offering higher returns with reasonable security and flexibility.