A fixed deposit is basically a debt instrument that is issued by a corporate, government, banks etc., in India. They carry a fixed coupon rate.
When a Fixed Deposit is issued it is like issuing debt and the person to whom it is issued promises to pay the interest as well as the principal amount after a certain period. For example, interest may be paid on maturity along with the principal or at regular intervals.
What Are Non Convertible Debentures?
Non convertible debentures or NCDs are also debt instruments. While earlier there was also fully convertible debentures that could be converted into shares, we seldom find those these days. Most of the debentures issued are non convertible debentures.
Like Bonds they carry a fixed interest rate and the same is paid at regular intervals or on the payment of principal amount (along with it).
Non convertible debentures are listed on the stock exchange. For example, we presently have the non convertible debentures of Muthoot Finance that are currently being offered. These carry a fixed interest rate that is pre-determined.
Difference Between Non Convertible Debentures and Fixed Deposits
|Debenture Or NCD||Fixed Deposit|
|Tax||Taxable, but no TDS||Taxable and TDS applicable|
|Listing||Listed on Bourses||Never listed on Bourses|
|Interest Payment||Cumulative and non cumulative||Cumulative and non cumulative|
|NCDs||May not be very secure||Very safe if issued by govt and banks|
|Types||Can be converted to shares||Cannot be converted to shares|
|Duration||Can be up to 7 years||Can be up to 20 years|
|Issuance||Very few NCDs are issued||Continuously being issued|
Which is better an NCD of Fixed Deposit?
It depends on your own risk taking ability. NCDs are slightly more risky when compared to bank deposits. Fixed deposits on the other hand are far less riskier. Most of the bank deposits are very secure deposits and there is very rare chance of a default. So far we have not heard of any NCD default as well and they are rather rare in India.
No TDS is deducted on NCDs, while we find that in case of company fixed deposits a TDS is applicable if the interest income exceeds Rs 5000 in the financial year. On the other hand a TDS is applicable on bank deposits if the interest income exceeds Rs 10,000 during the financial year.