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Comparison Between Non - Convertible Debentures and Fixed Deposits

Non-convertible debentures (NCDs) are debt instruments used by companies to raise long-term capital from the public through public issues. NCDs offer higher returns than bank fixed deposits (FDs), typically 200-250 basis points higher, but provide less liquidity than FDs as NCDs cannot be withdrawn and must be sold. While FDs have fixed maturities from two weeks to five years, NCDs have fixed maturities indicated on the date of issue when the issuing company must repay debenture holders through redemption of capital.

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150 views1 page

Comparison Between Non - Convertible Debentures and Fixed Deposits

Non-convertible debentures (NCDs) are debt instruments used by companies to raise long-term capital from the public through public issues. NCDs offer higher returns than bank fixed deposits (FDs), typically 200-250 basis points higher, but provide less liquidity than FDs as NCDs cannot be withdrawn and must be sold. While FDs have fixed maturities from two weeks to five years, NCDs have fixed maturities indicated on the date of issue when the issuing company must repay debenture holders through redemption of capital.

Uploaded by

Komal Raja
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Comparison between Non – Convertible Debentures and Fixed Deposits

Sr.No Non Convertible Debentures Fixed Deposits


01 Non-convertible debentures(NCDs) are a The account which is opened for a particular
financial instrument that is used by companies fixed period (time) by depositing particular
to raise long-term capital. This is done amount (money) is known as Fixed (Term)
through a public issue. NCDs are a debt Deposit Account.
instrument with a fixed tenure and people who
invest in these receive regular interest at a
certain rate.
02 The non-convertible debentures (NCDs) are The main purpose of fixed deposit account is
essentially the loans raised by corporate to enable the individuals to earn a higher rate
entities from the public. Government loans are of interest on their surplus funds (extra
known as bonds, while the corporate ones are money).
known as debentures.
03 NCDs typically offer 200-250 basis point A high interest rate is paid on fixed deposits.
higher returns than the bank FDs at any point The rate of interest may vary as per amount,
in time. period and from bank to bank.

04 In this case , company can provide collateral Herein , there is no such factor involved hence
security against the debt collected from the this makes FD the second option to invest over
market via NCD’s to repay off the NCD NCD’s
holders their debt at the time of liquidity .

05 In terms of Liquidity , the NCD’s cannot be In terms of Liquidity, Once the money
withdrawn but can be sold in the market as deposited cannot be withdrawn for the said
being the instrument listed and traded in the tenure. If done , then there is penalty charge
respective stock exchange towards the same

06 For Nonconvertible debentures, the date of Fixed deposits can have maturities from two
maturity is also an important feature. This date weeks to five years. Fixed deposits cannot be
indicates when the issuing company must pay redeemed early. In other words, money cannot
back the debenture holders. The most be withdrawn for any reason until the time-
common form of repayment is called duration on the deposit has expired. If money
a redemption out of capital. Through this is withdrawn early, then the bank can charge
redemption, the issuing company makes a an early withdrawal penalty or fee.
lump sum payment on the date of maturity.

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