Fixed deposits are fixed-income instruments issued by RBI-regulated banks that bear interest returns at the end of the term, while non-convertible debentures (NCDs) are generally issued by corporates for raising funds and pay interest based on frequency of payments. According to reports from Personal Finance News, fixed deposits are deemed more secure compared to bonds, as they are issued by RBI-regulated banks. However, NCDs are also rated by different rating agencies to denote their safety levels, though they carry credit risk with potential chances of default on principal and interest payments by issuers. As reported by Upstox, NCDs are strictly regulated by the Securities and Exchange Board of India (SEBI) and issued by RBI-registered entities, offering investors the opportunity to invest in bonds for as low as ₹1,000.
Banks in India currently offer interest rates of 2.5-8% depending on tenure, which ranges from a few days to several years. As reported by Personal Finance News, NCDs typically offer 1-2% higher returns than most FDs of similar tenure due to their relatively higher risk profile. This premium return compensates investors for accepting the additional credit risk associated with corporate debt instruments. According to Upstox, NCDs can offer up to 10.5% p.a., far better than most fixed deposits, with returns varying depending on the issuer and its credit ratings. The platform allows investors to subscribe to freshly launched NCDs at fixed issue prices ranging from ₹1,000 to ₹10,000 per bond.
Both instruments are taxed as per investor's slab rate under 'income from other sources' head. According to Personal Finance News, interest on FD income attracts TDS, while listed NCDs have no TDS implications. Regarding liquidity, early redemption or premature withdrawal is allowed in FDs with costs, whereas NCDs are difficult to exit due to low trading volumes and relatively low liquidity in the secondary market. As reported by Upstox, investors can sell/redeem their NCDs before maturity by selling them on Indian stock exchanges (NSE & BSE), though a demat account is mandatory for investing in NCDs as they will be held in demat form.
As reported by Personal Finance News, investors should base their investment choices on their own financial goals and risk tolerance. The decision between FDs and NCDs depends on whether investors can afford higher credit risk for potentially higher interest rates or returns. According to Upstox, investors should fundamentally analyze the issuer's financials to assess its ability to pay interest and repay debt obligations, with secured NCDs being asset-backed and enabling recovery if the company defaults. The choice ultimately depends on individual risk appetite and the need for capital preservation versus higher yield potential in the investment portfolio.
