Debentures Vs FD: Differences and Which One to Choose

If you are looking to start investing with just ₹1,000, a fixed deposit is your easiest entry point. Debentures, on the other hand, usually demand a higher minimum investment of around ₹10,000. But the difference does not end there; FDs vs debentures vary in safety, returns, and risk.

Before you pick the right tool or mix both in your portfolio, explore these key differences to make a confident, well-balanced investment decision.

Key Differences Between Debentures vs FD

One of the key differences between FD and debentures is the type of interest rate. In the case of FD, the interest rate remains unchanged for the entire tenure. However, in the case of debentures, the interest rate can be floating or fixed, as declared by the issuer. 

What is a Debenture?

Debentures are unsecured debt instruments indicating no requirement for collateral. Governments and companies raise funds for welfare and company operations by issuing debentures to the public.

If you invest in debentures, you can earn fixed interest rates on the invested amount. Notably, even though you can get back the invested amount on maturity, there is a credit risk due to no asset inclusion. 

Ensure you check the credit rating of the company before investing in debentures to minimise your risk. 

What is a Fixed Deposit?

Fixed deposits (FD) are safe investment options wherein you can receive a predetermined interest rate periodically or on maturity. The interest rate varies based on the financial institution, the tenure of investment and the investment amount.

Usually, FDs offered by banks are insured by DICGC of up to ₹5 lakh, ensuring security. You can choose between multiple interest payout options in the case of FD investments, such as monthly, quarterly, annual or cumulative. 

Things to Consider While Investing in Debentures

• Before you invest in debentures, ensure you check the maturity tenure. 
• Choose a debenture that aligns with your financial goals. 
• Check the credit rating of the issuing company to avoid high risk and low creditworthiness.
• Analyse the financial stability of the issuing company before you invest in a debenture. 

Things to Consider While Investing in FDs

• Check the interest rate, the tenure of maturity and options for premature withdrawal. 
• Check the time at which you will receive the maturity amount and the prematurely withdrawn FD in your account.

Debentures vs FD: Which One to Choose?

Usually, debentures have a longer maturity tenure compared to FDs. If you have a short-term financial goal or want to build emergency funds, you can choose FDs. 

Moreover, if the issuing authority of debentures has a lower credit rating, you can choose fixed deposits with DICGC insurance, ensuring safety. However, if you want to invest for the long term, you can choose both FD and debentures based on your financial objectives.

Final Words

To choose between debentures vs FD, ensure you consider the minimum investment amount, tenure, financial goals, and safety. If you want a safer investment with no risk, you can choose an FD.

Stable Money-partnered banks and NBFCs offer FD with up to 8.15% interest per annum. You can book multiple FDs with different banks without opening additional bank accounts.

Download the Stable Money app now to book your FD anytime!