Fixed Deposit (FD) vs. Bank Debenture in Nepal: Returns, Risk & 5% Tax
Conservative investors seeking steady passive income in Nepal face a recurring decision: locking capital into short-term Fixed Deposits (FD) or subscribing to long-term corporate bank debentures. Both asset classes provide predictable yield, but differ in liquidity, tenure, and capital locks.
- Fixed Deposits feature shorter tenures (3 months to 3 years) with quarterly interest adjustments.
- Bank Debentures lock interest rates for 7 to 10 years, shielding investors from declining interest rate cycles.
- Debentures are listed on the Nepal Stock Exchange (NEPSE) and trade through broker TMS portals.
- Both fixed deposits and debenture yields incur 5% individual withholding tax deducted at source.
Core Differences: Fixed Deposit vs. Corporate Debenture
Comparing essential parameters highlights their structural mechanics:
| Feature | Bank Fixed Deposit (FD) | Bank Debenture (ऋणपत्र) |
|---|---|---|
| Typical Tenure | 3 Months to 3 Years | 7 to 10 Years |
| Interest Rate Structure | Fixed for deposit term | Fixed coupon rate for entire decade |
| Premature Exit | Bank penalty fee (typically 1%) | Sell via NEPSE broker without bank penalty |
| Collateral Loan | Borrow up to 90% from issuing bank | Pledge up to 70% with BFIs |
| Tax on Earnings | 5% TDS for individual depositors | 5% TDS on semi-annual coupon payments |
Liquidity Mechanisms Compared
Exiting a Fixed Deposit before maturity requires paying premature cancellation penalties that reduce your historical return. In contrast, debenture holders can place sell orders on the secondary NEPSE trading floor to liquidate holdings at market price without canceling the underlying bond contract.
Final Thoughts
Matching your investment horizon to the correct asset structure maximizes cash flow safety. Compare maturity proceeds using our Fixed Deposit vs Debenture Calculator.
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