The RBI’s first rate cut in nearly five years marks a crucial moment for India’s fixed-income market, creating an environment where both Fixed Deposits and Bonds demand closer evaluation. FDs, a staple of conservative investing, offer predictable returns and security, making them a go-to choice for capital preservation. Banks have enhanced FDs' appeal with flexible interest payout options. However, post-tax returns remain modest—around 5.1% for investors in the highest tax bracket, barely keeping pace with inflation. While FDs ensure stability, they may not significantly grow wealth in real terms.

Bonds, traditionally favored by institutions, are gaining traction among retail investors, driven by higher yield potential and increasing accessibility through platforms like OBPPs. Government-backed initiatives such as the RBI’s Retail Direct Scheme, which has already attracted over 2 lakh retail accounts managing ₹2,200 crore, further validate this shift. Bonds offer a spectrum of returns— ranging from 8% to 14% in the secondary market—appealing to both conservative and moderate risk-takers. However, factors such as default risk, interest rate volatility, and liquidity constraints need to be carefully assessed.

With Indian bonds now part of global indices, the market expects $25–30 billion in annual foreign inflows, improving liquidity. Meanwhile, fluctuations in US Treasury yields, trade tensions, and oil prices will continue to influence domestic bond performance. Current bond yields reflect this evolving landscape. The benchmark 10-year G-sec yield stands at 6.8% (March 2025), with projections suggesting a decline to 6.25–6.50% over the next year. In a falling rate environment, AAA-rated corporate bonds could perform better than government bonds as spreads compress, potentially offering better risk-adjusted returns.

Investors weighing FDs against bonds must consider liquidity constraints. While FDs allow premature withdrawals (with penalties), bonds vary in liquidity—government securities are actively traded, but corporate bonds, particularly lower-rated ones, may face exit challenges. For those prioritizing easy access to funds, shorter-duration FDs or liquid government securities remain preferable.

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