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Bonds and Fixed Deposits tend to behave in the same manner as far as a lay man is considered. Both of them offer interest payout to the investors in a similar manner and can be offered by financial institutions, corporate bodies or government bodies. Just like fixed deposits, bonds have a fixed maturity which can range from a few days to over 20 years. Each bond has a face value which reflects the amount which the Company is borrowing. Interest is paid at a specified rate on the face value of the bond. For example a bond having face value of Rs. 10,000 per bond, paying interest @ 10% per annum would be paying out Rs. 1000 per year. This interest can either be paid quarterly / semi-annually / annually or can be compounded and be paid at the maturity of the bond.

Bonds issued by Government of India are generally known as sovereign bonds and are one of the most low risk / safe investment options available. Hence they offer the least interest rate payouts.

In the recent times, most of the bonds can also be held in dematerialised forms and are also listed on stock exchanges offering investors the option to liquidate their bonds by selling them via a stock broker.

Interest paid by Bonds is taxed under the head of Income from other sources. Any gain arising out of selling bonds is taxed under the head of Capital Gains.
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