Fixed Deposit vs Debenture | Which is Better?

Fixed Deposit vs Debenture

What is a Fixed Deposit?

Fixed Deposit is also known as FD in short is a deposit account at the bank for a fixed period of time. It is also known as the term of time deposit. Fixed Deposit entitles individual investors to fixed interest payment and returns of the deposited amount after its maturity period. Bank offers higher interest rates on FD than saving and current accounts as the money is available for a longer period of time for the bank to use it. Fixed deposit is suitable for senior citizens, pension holders, and retired people who do not need money immediately.

Features of Fixed Deposit

  • It is saving in nature
  • Fixed deposit amount deposited in the bank and financial institutions.
  • The interest amount is paid quarterly, semiannually, and annually.
  • The maturity period will be of 3 months to 10 years.
  • Customers can not withdraw the deposited amount within the fixed deposit period.
  • Customers have the option to chose the maturity period.
  • Fixed deposit is risk-free.
  • Bank has the details of the fixed deposit holders.

What is Fixed Deposit Rate in Nepal?

The fixed deposit interest rate is not fixed however there are between 7% to 11% interest have been providing by banks and financial institutions in Nepal. The. fixed deposit rates are different from one bank to another.

Check Latest Fixed Deposit Rates in Nepal

What is Debenture?

A debenture is one of the instruments in the capital market that is used to raise money from the public. Although it is issued to the public from an IPO, it is completely different from ordinary shares.  It is essentially a debt instrument that acknowledges a loan to a company. Debenture holders are creditors for that company and they get predefined interest annually or semi-annually. Debenture holders also get their principal amount after the completion of their maturity period. Issuing  Debentures is one of the most common methods of raising the funds available to the company.

In the context of Nepal, all A-Class banks are issuing debentures. Debenture can also be traded in the secondary market like other ordinary shares. The par value of the debenture in Nepal is Rs. 1000 per unit.

Features of Debenture

  1. Debenture holders are the creditors of the company who get predetermined interest.
  2. Debenture can be redeemed after a fixed period of time (maturity period).
  3. Debentures can be either secured or unsecured.
  4. Interest payable on a debenture is a charge against profit and hence it is a tax-deductible expenditure.
  5. Debenture holders enjoy no voting rights.
  6. The company must pay interest to the debenture holder either they make a profit or not.

Fixed Deposit vs Debenture Comparison

Fixed Deposit vs Debenture

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