When you buy a debenture, you're lending money to a company. They promise to pay you interest regularly and return your money at the end. Simple enough. The question is how sure you are that they'll keep that promise.
Debentures aren't fixed deposits
A lot of people treat bank debentures in Nepal as "basically an FD with a better rate." They're not the same thing. A debenture isn't covered like a deposit, and if the issuer gets into trouble, debenture holders have to wait their turn to get paid.
What to look at
- Who's borrowing? A large, well-capitalised bank is a different risk from a small company with heavy losses.
- Coupon rate and payment schedule: how much interest, and how often?
- Maturity: many are 7–10 years. That's a long time to lock money away.
- Secured or unsecured: is anything backing it?
- Can you sell early? Debentures are listed on NEPSE, but trading is often thin. You might not find a buyer at a fair price.
The coupon isn't your total return
If you buy a Rs 1,000 debenture on the secondary market for Rs 1,050, your actual return is lower than the coupon suggests. Tax on interest reduces it further. And if interest rates rise after you buy, the market price of your debenture tends to fall.
Bottom line
Debentures can be a reasonable part of a portfolio, especially for steady income. Just read the offer document, understand who you're lending to, and don't let the phrase "fixed income" convince you your principal is guaranteed.
General information, not personal financial advice. Rules, rates and fees change, so check with the official source before you act.
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