Corporate fixed deposits v/s debt NCDs: 5 key differences
What's the story
Corporate fixed deposits (FDs) and debt non-convertible debentures (NCDs) are two popular investment options for those looking to park their money in the corporate sector. Both have their own benefits and risks, making it important for investors to know the difference between the two. Here's a look at five key differences between corporate FDs and debt NCDs to help you make an informed choice.
#1
Interest rates and returns
Corporate FDs usually offer higher interest rates than traditional bank deposits, attracting investors looking for stable returns. On the other hand, debt NCDs come with varying interest rates depending on the credit rating of the issuer and market conditions. While NCDs can offer higher returns, they also come with more risk as they are subject to market fluctuations.
#2
Risk factors involved
The risk factor associated with corporate FDs is relatively low, as they are regulated by financial authorities and offer fixed returns over a specified period. Debt NCDs, however, carry a higher risk as they are influenced by the issuer's creditworthiness and market volatility. Investors need to assess their risk appetite before choosing between these two options.
#3
Liquidity considerations
Liquidity is an important consideration while investing. Corporate FDs usually have a lock-in period, which restricts access to funds until maturity. Debt NCDs, on the other hand, can be traded on stock exchanges, giving investors the option to sell before maturity. However, this liquidity comes with price fluctuations that may affect returns.
#4
Tax implications
Tax implications differ for corporate FDs and debt NCDs. Interest earned from corporate FDs is taxed according to the individual's income tax slab rate. On the other hand, capital gains from selling debt NCDs are taxed based on how long they are held—short-term or long-term capital gains tax rates apply.
#5
Minimum investment requirements
Minimum investment requirements also differ between these two options. Corporate FDs usually have lower minimum investments, making them accessible for small investors. Debt NCDs may require higher minimum investments, but they also offer diversification opportunities across different issuers and sectors within the corporate bond market.