What Is The Difference Between Debentures (NCDS) And Fixed Deposit In India?
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.
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