Where to Invest: Company Fixed Deposits or Non-Convertible Debentures?


Fixed deposit is not only the oldest but also a trustworthy and more popular form of investment. Due to the safety and surety of the funds within financial institutions, investors do not mind that the rate of returns are not as much as they expected. When you are looking to invest in FD, you must consider three aspects which are the tenure of your FD, the rate of interest provided to you by your lender, and the amount you will get at the time of maturity.

Moreover, the fixed return which is given by the financial institution to the investor is the reason why many people choose to invest in fixed deposits. Also, market conditions do not affect the rate of interest. This means if you make a fixed deposit of an amount at 10%, 3 years later even if the rate of interest is 8%, you will be getting rate of interest on FD at 10% only. However, without paying a penalty charge, you cannot break your fixed deposit.

On the other hand, bonds that cannot be converted to equity or company stock are called Non-Convertible Debentures (NCB). Non-Convertible debentures are both secured and unsecured. NCD’s can be sold at any time as they are flexible. NCD’s (Non-Convertible Debentures) by companies to raise long-term funds via a public issue. Lenders provide a rate of return which is high so that it compensates with the fact that the debentures are non-convertible. However, if you invest in an NCD, you will enjoy benefits such as tax exemption at the source and high liquidity through the stock market listing.

If you plan to invest in an NCD, then you must look at the company’s financial health and stability. Also, you can check the ratings of the company. If you are getting an offer of high interest from a company that does not have a good rating, you must avoid taking it.

Both, fixed deposits and Non-convertible debentures have their merits and demerits. So, following are the aspects to clear both the terms and their usage:

  • Liquidity: A fixed deposit cannot be broken before it matures and if you want to do so, you will have to pay some minor penalty charges. However, a non-convertible debenture is listed in the share market and can be sold at any given time.
  • Safety: Non-convertible debentures which are offered by Non-Banking Financial Companies (NBFC’s) are unsecured. FDs issued by lenders are secured up to a certain limit decided by them.
  • Tax: Difference in taxation between non-convertible debentures and fixed deposits offered by the lender is that for fixed deposits you are required to pay Tax deductible at Source (TDS). On the other hand, TDS is not charged to non-convertible debentures.
  • Interest Rates: NCD’s have high risk involved in interest rates. This is because the interest rates in market vary. For example, you might buy an NCD at 8% but sell it at 10%. It can be more or less than the interest rate that it was initially bought at.

Hence, NCD’s and fixed deposits both can be liquidated. You can encash both fixed deposits as well as non-convertible debentures at any time you want to. However, a fixed deposit is highly taxable when compared to a non-convertible debenture, but the interest risk is much higher for NCD’s than in fixed deposits.

Therefore, due to the fixed deposit rates which are given by NBFC’s are higher than that offered by other lenders, they become favourite for people to invest in. The reliability and financial health of the company decide the safety of the capital invested. Furthermore, fixed deposits offered by companies provide more flexibility with respect to their duration.

Therefore, before investing, you must consider all the above parameters and risks involved for both fixed deposits and non-convertible debentures.


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