NCD vs bank FD: how they differ
A bank fixed deposit (FD) is a deposit with a bank, while a non-convertible debenture (NCD) is a loan to the company that issues it. Both pay interest for a set period, but an NCD's interest and repayment depend on the issuer being able to pay and are not guaranteed, and an NCD has no deposit insurance. This post goes through where the two differ: what happens if the issuer fails, ratings, getting out early, price changes, where each is held and tax.
Key points
- A bank FD is a deposit with a bank. An NCD is a debt security: holding one means you have lent money to the company that issued it.
- DICGC insures bank deposits, fixed deposits included, up to a limit per depositor per bank. Its list of what is not covered includes stocks and bonds, and deposits taken by NBFCs.
- An NCD's interest and repayment depend on the issuer being able to pay, so neither is guaranteed. Security, a debenture trustee and a credit rating do not promise repayment either.
- A listed NCD can be sold before maturity only if a buyer exists, at the market price, which may be lower than what was paid.
What is the basic difference between an NCD and an FD?
An FD is a deposit. You place money with a bank for a fixed term, and the bank repays it with interest on the terms agreed.
An NCD is a security. SEBI's Non-Convertible Securities Regulations, 2021 (amended up to 21 January 2026) define debt securities as "non-convertible debt securities with a fixed maturity period which create or acknowledge indebtedness". In plain terms, the issuer borrows from you and owes you interest and the face value at maturity.
People often ask whether an NCD is the same as a "company FD". It isn't. Some finance companies (NBFCs) take fixed deposits, which are deposits with that company, not with a bank, and not NCDs either. DICGC lists deposits taken by NBFCs among the things it does not insure.
How do they compare side by side?
Each row below is a difference to understand, not a point in either one's favour.
| Bank FD | NCD | |
|---|---|---|
| What it is | A deposit with a bank | A loan to a company, often an NBFC |
| If the issuer fails | Bank deposits are insured by DICGC up to a limit per depositor per bank. Check the current limit at dicgc.org.in | No deposit insurance. Recovery depends on the company's assets, whether the NCD is secured, and its repayment priority |
| Rating | Usually not rated | Under SEBI's NCS rules, rated by at least one SEBI-registered credit rating agency (regulation 10). A rating is an opinion, not a promise |
| Exiting early | Premature withdrawal, usually with a penalty | Sold on the exchange if a buyer exists, at the market price, which may be lower |
| Price changes | None | The market price moves with interest rates and the issuer's credit |
| Where you hold it | With the bank | In your demat account |
A similar table, with a row on tax, sits in our Learn section on NCDs and bank FDs. The sections below explain each row.
What happens to my money if the bank or the company fails?
For a bank FD, deposit insurance applies. According to DICGC's guide to deposit insurance, it insures "all deposits such as savings, fixed, current, recurring, etc." in insured banks, with a few exceptions such as deposits of governments and inter-bank deposits. Its FAQs say the cover cannot be raised by spreading money across several accounts at the same bank: deposits held in the same capacity at one bank, across all its branches, are added together, and the limit applies to principal and interest together. Deposits in different banks are insured separately.
There is a limit, and anything above it is not insured. DICGC's site gives the current figure; we don't repeat it here.
For an NCD, there is no deposit insurance. DICGC's list of what is not covered names "Stocks and bonds" and "Deposits mobilized by Non-Banking Financial Company (NBFC)". If an NCD's issuer cannot pay, what holders recover depends on the company's assets, whether the NCD is secured, and its repayment priority.
A secured NCD is backed by a charge on assets, and the NCS Regulations require the issuer to appoint a debenture trustee for an issue of debt securities (regulation 8). Even so, SEBI's rules list a risk factor for the issue document saying that recovery of the full amount depends on market conditions when the security is enforced. An unsecured NCD has no specific assets set aside for its holders. Our section on secured, unsecured and seniority explains the ranking.
A common question is whether "secured" works like insurance. It doesn't. Security is a claim on assets, and how much can be recovered from them depends on market conditions when the security is enforced. Deposit insurance is a payment from DICGC, up to its limit.
Is an FD rated the way an NCD is?
Usually not. Bank FDs are usually not rated.
An NCD issued under the NCS Regulations must be. Under regulation 10, the issuer has to get a rating from at least one SEBI-registered credit rating agency and disclose it in the offer document. If it got ratings from more than one agency, it must disclose all of them, including any it did not accept.
Does a rating of AAA turn an NCD into something like an insured deposit? No. A rating is the agency's opinion of how likely the issuer is to pay on time. It is not a guarantee, it can be lowered or withdrawn, and no rating removes the risk of default. Our section on credit ratings shows how the scale works.
Can I get my money out before maturity?
With an FD, you ask the bank for premature withdrawal, usually with a penalty, on the terms of the deposit.
With an NCD, you don't go back to the issuer. Unless its terms give a put option (a right to sell it back on set dates), a listed NCD is sold on the stock exchange, and only if a buyer exists. The price is whatever a buyer will pay that day, which may be lower than what you paid.
Thin trading is a known risk. Schedule I of the NCS Regulations names "limited or sporadic trading" of an issuer's securities on the stock exchanges among the risk factors an issue document should disclose where it applies. Can a listed NCD always be sold on the day the money is needed? Not necessarily, as that risk factor shows.
Why can an NCD's price change when an FD's balance doesn't?
An FD has no market price. Its value is what the bank owes under the deposit's terms.
A listed NCD trades, so it has a price, and the price moves with interest rates and with how the market sees the issuer's credit. Bond prices and interest rates move in opposite directions. Longer maturities usually move more in price for the same change in rates.
Hypothetical example, not a real bond and not a forecast. Take an NCD with a face value of ₹1,000. If market interest rates rise after it is issued, its market price may fall below ₹1,000, say to ₹970. A sale at that point is at the market price. The ₹1,000 face value is still due at maturity under the bond's terms, if the issuer pays.
Our list of risks to check covers interest-rate, credit and liquidity risk.
Where is each one held?
An FD is held with the bank.
An NCD is held in a demat account. Regulation 7 of the NCS Regulations requires the issuer to arrange with a depository for its NCDs to be dematerialised and admitted on all the depositories. Do you need a demat account to hold an NCD? For a listed NCD, generally yes, and for NCDs issued by private placement, regulation 46 requires them to be credited to investors' demat accounts on allotment.
How is the interest taxed?
Interest on an FD and on an NCD may be taxed, and tax may be deducted at source on either. How it applies depends on your own situation and the rules in force when the interest is paid.
Tax rules change, so check with a tax adviser.
How do we read an NCD next to an FD?
We'd start with the rows above. When reading an NCD's details, it helps to look at the issuer, the security and seniority, and the rating before looking at the yield. A higher yield usually means the market sees more risk.
The bond list shows some key terms of each bond; the full terms are in its issue document. The compare page puts up to three bonds side by side. You can also ask Parmbh AI general questions about the terms in this post.
We explain bonds; we don't tell anyone which one to buy.
Sources
- Deposit Insurance and Credit Guarantee Corporation, A Guide to Deposit Insurance: What's Covered and What's Not covered (page shows no date), 28 Oct 2026 (checked 28 Oct 2026)
- Deposit Insurance and Credit Guarantee Corporation, FAQs: Depositors (page shows no date), 28 Oct 2026 (checked 28 Oct 2026)
- Securities and Exchange Board of India, Securities and Exchange Board of India (Issue and Listing of Non-Convertible Securities) Regulations 2021 [Last Amended as on January 21, 2026] (regulations 2(1)(h), 2(1)(k), 7, 8, 10 and 46, and Schedule I item 3.3.36), 21 Jan 2026 (checked 28 Oct 2026)
This post is for learning only. It is not investment advice or a recommendation to buy, sell or hold any bond, and it does not take your circumstances into account. Bonds carry risks, including the risk that the issuer does not pay on time or at all. Yields are not guaranteed, and figures are as of the dates shown. Parmbh earns a commission from Aspero or our partners when you invest through us. It is included in the price or terms you get from Aspero or the partner. We never hold your money. Before you invest, read the issuer’s documents and speak to a SEBI-registered adviser.
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