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For an investment of couple of lakhs over a period of 2 years, what factors should I consider in evaluating these investments side-by-side?

buy SB1 term deposit at 9.25
buy SB1 9.25% N1 bonds from the market via my brokerage
buy SB1 9.5% N2 bonds from the market via my brokerage

Here are the current prices:

http://www.equitymaster.com/result.asp?symbol=SBIBD&name=SBI-BOND-SI-N1-Stock-Quote-Chart

http://www.equitymaster.com/result.asp?symbol=SBIBO&name=SBI-BOND-S2-N2-Stock-Quote-Chart

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I wrote one to check against the N3 to N6 bonds: http://capitalmind.in/2011/03/sbi-bond-yield-calculator/

Things to note:

  • Fixed Deposit Interest is taxed at source (TDS), Bond interest is not
  • Both interests carry the same taxation structure (added to "other" income)
  • Brokerage can be a dealbreaker - if at 0.5% round trip, this takes away that much away from your yield.
  • FDs offer some level of compounding, bonds must pay out the interest (SBI doesn't have any compounding bonds out there, other banks or companies do)
  • What you care about is your yield. Since I use the excel formula "YIELD" for calculation, I note that an FD has a higher YIELD where the amount compounds every few months.

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