Fixed Deposits offer safety and predictable returns, while NBFC NCDs provide higher interest with slightly higher risk. Conservative investors prefer FDs, while return-focused investors choose high-rated NCDs for better yields.
Introduction
With interest rates stabilizing in 2026, Indian investors are once again comparing two popular income options:
✔ Bank Fixed Deposits (FDs)
✔ NBFC Non-Convertible Debentures (NCDs)
Both promise steady income — but with different risk and return profiles.
Under guidelines set by the Reserve Bank of India, banks and NBFCs now operate in a tighter regulatory environment, making the comparison more important than ever.
Let’s break it down simply.
What Is a Fixed Deposit (FD)?
A Fixed Deposit is a bank investment where:
• You deposit money for a fixed period
• Earn guaranteed interest
• Get principal + interest at maturity
Popular with retirees and conservative investors.
Major banks like State Bank of India offer FDs with varying tenures and rates.
What Is an NBFC NCD?
NCDs are:
• Debt instruments issued by NBFCs
• Fixed interest payouts (monthly/annual)
• Traded or held till maturity
Leading NBFC issuers often include firms like:
Bajaj Finance
Muthoot Finance
They usually offer higher returns than FDs.
FD vs NBFC NCD — Quick Comparison Table
| Feature | Fixed Deposits | NBFC NCDs |
|---|---|---|
| Risk Level | Very low | Low to moderate |
| Returns | 6% – 7.5% approx | 8% – 11% approx |
| Safety | Bank backed | Depends on issuer rating |
| Liquidity | Premature withdrawal allowed | May need market sale |
| Tax | Interest fully taxable | Interest taxable |
| Ideal For | Conservative investors | Return-seeking investors |
Why Many Investors Still Prefer Fixed Deposits
✅ FD Advantages
✔ Capital safety
✔ Predictable returns
✔ Easy withdrawal
✔ No market risk
✔ Ideal for emergency funds
⚠️ FD Limitations
❗ Lower returns
❗ Inflation can reduce real profit
❗ Fully taxable interest
Why NBFC NCDs Are Gaining Popularity
✅ NCD Advantages
✔ Higher interest income
✔ Fixed cash flow options
✔ Multiple tenure choices
✔ Often rated by credit agencies
⚠️ NCD Risks
❗ Issuer default risk
❗ Lower liquidity
❗ Market price fluctuations
How to Choose Between FD and NCD (Step-by-Step)
1️⃣ Assess Your Risk Appetite
Low risk → FD
Moderate risk → NCD
2️⃣ Check Credit Rating (For NCDs)
Prefer AA+ or AAA rated issues
3️⃣ Match Investment Horizon
Short-term → FD
Medium-term → NCD
4️⃣ Consider Tax Planning
Both taxed — use tax-saving instruments separately
Expert View
Wealth Advisor – Mumbai
“FDs remain the backbone of safe investing, but high-rated NBFC NCDs are excellent for boosting portfolio yield when chosen carefully.”
Fixed Income Analyst – Bengaluru
“In a stable rate environment, locking higher NCD yields can significantly improve long-term income.”
FD vs NCD — Who Should Choose What?
| Investor Type | Best Option |
|---|---|
| Retirees | Fixed Deposit |
| Risk-averse | Fixed Deposit |
| Income seekers | NBFC NCD |
| Diversified investors | Mix of both |
| Short-term savers | FD |
| Medium-term planners | NCD |
Key Takeaways
FDs = Safety first
NCDs = Higher returns with moderate risk
Best strategy: balance both
Always check credit ratings
Match tenure to your goals
❓ FAQs –
1. Are NBFC NCDs safe in 2026?
High-rated NCDs are relatively safe but not risk-free like bank FDs.
2. Which gives better returns — FD or NCD?
NCDs usually offer higher interest than FDs.
3. Can I lose money in NCDs?
Yes, if the issuer defaults or market prices fall.
4. Are FDs fully safe?
They are among the safest investments in India.
5. Is interest taxable in both?
Yes, both are taxed as per income slab.
6. Can I withdraw FD early?
Yes, usually with small penalty.
7. Can I sell NCD before maturity?
Yes, but price depends on market demand.
8. Should beginners invest in NCDs?
Only in high-rated ones and in small amounts initially.
9. Are NCD returns fixed?
Yes, most offer fixed interest.
10. Is diversification important?
Yes — mixing FDs and NCDs balances safety and returns.
11. Do NCDs beat inflation better?
Often yes due to higher interest.
12. Are NBFCs regulated?
Yes, under RBI guidelines.
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Final Verdict
If safety is your top priority — go with Fixed Deposits.
If higher income matters and you can accept moderate risk — NBFC NCDs are attractive.
👉 Best strategy in 2026? Combine both for stable yet rewarding returns.
Published on : 16th February
Published by : SMITA
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