Here, in this blog, we will learn about Debenture vs Fixed Deposit and which option is the best option for you. Read until the end to know the answer and the benefits and risks associated with both investing options.
When it comes to investing, there are many options to choose from. Two popular options are fixed deposits and debentures.
Let’s take a look at the key differences between these two investment options to help you decide.
Debenture vs Fixed Deposit
- Debentures are debt instruments, while fixed deposits are financial instruments.
- Generally, Debentures are issued by companies, while banks issue fixed deposits.
- Debentures are unsecured bonds, while fixed deposits are secured.
- Debentures are traded in the secondary market, while fixed deposits are not traded in the secondary market.
- Debentures are issued for medium to long terms, while fixed deposits can be issued for short, and medium terms.
Also Read: Upcoming IPOs in Nepal
What is a Debenture?
A debenture is a type of debt instrument that is not backed by any collateral and is unsecured. Companies issue debentures to raise capital and are often traded on the secondary market.
A debenture is a type of bond that a company issues. You are lending money to the company when you invest in a debenture. In return, the company agrees to pay you interest at a fixed rate. Debentures are typically for a longer term than fixed deposits, ten years or more.
In normal cases, the main benefit of debentures is that they often have higher interest rates than fixed deposits. This means that your money will grow more quickly. The downside of debentures is that they are riskier than fixed deposits. This is because you are lending money to a company, which means there is a chance that the company will not be able to repay you.
What is a Fixed Deposit?
A fixed deposit (FD) is a type of savings account where the money deposited earns interest at a fixed rate. The interest rate is usually higher than that of a regular savings account. FDs have a fixed tenure, and the money deposited cannot be withdrawn before maturity.
With a fixed deposit, you essentially lend money to a bank or financial institution for a set period. In return, the bank will pay you interest at a fixed rate. The main benefit of a fixed deposit is that it is a low-risk investment. This is because the bank backs your money, so you know you will get your money back, plus interest.
In ordinary cases, the downside of fixed deposits is that they tend to have lower interest rates than other investment options. This means that your money will grow more slowly than it would with other options.
FAQs
Is debenture a safe investment?
Debentures are generally considered more risky investments than fixed deposits, but they also offer higher interest payments.
What are the benefits of debenture?
The significant benefit of debenture is High-interest rates: Debentures offer higher interest rates than other types of debt instruments, making them an attractive investment option.
What are the risks of debenture?
Debentures are unsecured, which means any collateral does not back them. This makes them riskier than other types of debt instruments. Investors may not get their money back if the company issuing the debenture goes bankrupt.
What are the benefits of a fixed deposit?
Fixed deposits offer many benefits, such as:
– Safety: Fixed deposits are one of the safest investment options.
– Flexibility: Fixed deposits offer flexibility in terms of tenure and withdrawal. Investors can choose the tenure of their investment and can withdraw their money before the maturity date if needed.
What are the risks of fixed deposits?
Fixed deposit is considered one of the safest investment options; however, there are some risks associated with them, such as:
– Interest rate risk: The interest rate on fixed deposits is fixed for the tenure of the investment. If the interest rates rise, the investor will not benefit from the higher interest rates.
– Inflation risk: The value of money decreases over time due to inflation. This means that the purchasing power of the investor decreases over time.
What is the Fixed Deposit Interest Rate in Nepal?
The fixed deposit interest rate in Nepal is generally higher than the savings account interest rate which is around 8% to 11.03%.
So, which one to choose?
The final conclusion to this blog ends with the answer to the questions, i.e. which one to choose (Debenture vs Fixed Deposit). The answer to this question depends on the circumstances like the country’s condition, economy, and interest rate of the bank.
If the bank is providing a higher interest rate then go with Fixed Deposit and in case of a lower interest rate in FD, go with Debenture.
Before deciding to go with one, please seek help from your Financial Advisor.
However, in the normal economic conditions of the country, if you are looking for a safe investment with moderate returns, then a fixed deposit may be a good option. However, debenture may be a better option if you are looking for a higher-yielding investment.
Let me know your thoughts on this topic in the comment section.