Company Fixed Deposit V/S NCDs: Which One is a Better Option For Investment

These days people prefer investing rather than saving. Parking your funds in an investment option is a good way to multiply your funds and earn higher returns. Although savings is an age old method, you surely cannot earn higher returns over a short period of time. For that, you need to have the patience for not using your funds for a longer period and adopt a facility which can give your funds safety and higher returns to your account.Company fixed deposit vs NCDs

Talking about investments, there are many investment options wherein you can allocate your funds. Here are the two most common investment options which people usually prefer:

Fixed Deposit:

Fixed deposit (FD) is one of the traditional method used in India to invest funds. It is considered as one of the most trustworthy forms of investment. Although the returns on a fixed deposit are not as high as you might expect, it still manages to offer a rate of interest which is higher as compared to a savings account. Since the investment is safe and does not depend upon market conditions, it makes the investment avenue a good place to park your funds in. On the other hand, company’s fixed deposit is a bit different. The interest rate offered by them is higher than that of banks.

Moreover, a fixed deposit serves many facilities to its users. For example, you will get a good amount of interest if you are opting for a senior citizen fixed deposit as it gives higher returns in compared to other FD accounts. Similarly, you will get other benefits too by using the perfect investment option. However, companies fixed deposits offer various schemes and facilities to their investors which they can benefit from instead of going for a bank FD.

Non-convertible Debentures:

Non-convertible Debentures (NCDs) are unsecured bonds which cannot be converted into company equity or stocks. NCDs have a higher rate of interest compared to convertible debentures. There are two types of NCDs, secured and unsecured. To fulfil the debt requirement in secured NCDs, you are required to keep an asset as collateral, whereas, unsecured NCDs are concerned, no collateral is required.

It might be confusing when it comes to choosing an investment option. So, here is a comparison between company’s fixed deposits and non-convertible debentures, which can help you to choose the right investment avenue:

  • Liquidity:

Fixed deposits is a one-time investment, which is also a permanent form of investment. When it comes to withdrawing funds from fixed deposits often restricts to do so. In case if you end up in a financial emergency, you have to break the FD and pay penalty charges for doing so. However, when it comes to liquidity, NCDs are more beneficial as you can even sell them in a stock exchange if needed.

  • Safety:

Talking about the security, company FD is much secured than NCDs. As fixed deposits offer an insurance worth INR 1 lakh, which provides security for the amount you have invested. Whereas, NCDs has no such thing to offer.

  • Tax benefits:

The taxations aspect between the two avenues varies. FD is fully taxable. If the interest offered by your lender exceeds over INR 10,000, then you are liable for tax payment, but you can also escape from it by applying for Section 80C. Whereas, NCDs are not charged with taxation. Apart from interest income, an NCD can be sold before maturity. Thus, you can earn capital gains.

The aspects mentioned above have shown the difference between the two. From the above description, it is quite clear that the company’s FD is a better option to invest in rather than NCD. Especially, if you want to earn higher returns investing in company’s fixed deposit is a much better option as the returns are high and the investment is also safe.