NCDs vs. Fixed Deposits: Which Is a Better Investment in India?

When investing, we all look for options that provide safe and good returns. After all, we make investments to grow our wealth and never look forward to registering losses. Two common choices for you can be Non-Convertible Debentures (NCDs) and Fixed Deposits (FDs). Both these options allow you to earn interest on your money. However, there are several differences between them. They differ in terms of risk, returns, and taxes. So, let’s take a look at the aspect of NCDs vs Fixed Deposits to help you understand which is better for you.

What Are Non-Convertible Debentures (NCDs)?

Non-convertible debentures (NCDs) are a type of loan that investors give to companies. In return, the company promises to pay interest for a fixed time. These debentures are called non-convertible as they cannot be turned into shares of the company. The major benefits of NCDs:

• Higher interest rates than FDs
• Flexibility in terms of time
• Can be bought and sold in the stock market

However, keep in mind that NCDs come with higher risk. If the company is not doing well, it may not be able to pay back the loan or interest on time.

Also Read : What is Non Convertible Debentures

What Are Fixed Deposits (FDs)?

Fixed Deposits (FDs) are very popular and are a safe investment option offered by banks. When you invest in an FD, you deposit a sum of money with the bank for a fixed time. Then the bank pays you interest during this time, and once the period ends, you get your money back along with the interest earned. The major benefits of Fixed Deposits are:

• Very safe investments as banks issue them
• Your money up to ₹5 lakh is insured by Deposit Insurance and Credit Guarantee Corporation (DICGC)
• Provides fixed returns

FDs are a good choice if you prefer safety over risk.

Key Differences Between NCDs and Fixed Deposits

Refer to the below table for the comparison of Non-convertible debentures vs FDs risk factors:

Feature	Non-convertible debentures (NCDs)	Fixed Deposits (FDs)
Risk	High, depends on the company’s health	Low, as backed by banks
Returns	Higher but not guaranteed	Lower but guaranteed
Liquidity	Can be sold in the stock market	Limited and may have withdrawal charges
Tenure	Flexible	Fixed
Safety	Risky if the company struggles	Very safe, as insurance up to 5 lakh

Comparison in Interest Rates

NCDs usually offer higher interest rates compared to FDs, though the risk is also higher. Here are the interest rates for both:

Investment Type	Interest Rates (%)
NCDs	7% to 10% (16.1% with 13Karat NCDs)
FDs	5% to 9%

Tax Implication of NCDs

Both NCDs and FDs are taxable. Here’s how it works:

• NCDs: The interest earned is added to your income and taxed according to your tax slab. If you sell NCDs early and make a profit, you may need to pay capital gains tax.
• FDs: Interest on FDs is also taxable according to your income tax slab. If you earn more than ₹40,000 as interest in a year, the bank will deduct Tax Deducted at Source (TDS) at a rate of 10%.

Which Is a Better Investment for You?

It is not easy to choose between NCDs an FDs as it all depends on your preferences on goals. However, you should:

• Choose NCDs if you are looking for higher returns and are okay with taking some risk.
• Choose FDs if you prefer safety over high returns or if you want a secure investment that would give you guaranteed returns.

Also Read : Fixed Deposits Vs P2P Investment

Conclusion

So, in the battle of NCDs vs Fixed Deposits, both have their own strengths. NCD investment benefits include higher returns, but they also come with higher risks. On the other hand, Fixed Deposit safety makes FDs a better choice for conservative investors who want stable and guaranteed returns. If you are okay with higher returns and a bit of risk, then download the 13Karat app to earn an annual return of 16.1% per annum on your NCDs.