Debenture trading in Nepal's secondary securities market has seen a dramatic rise in the current fiscal year. Data from the Nepal Stock Exchange (NEPSE) reveals a sharp increase in both the number of debentures traded and the total transaction value.
During the first five months (mid-July to mid-December) of the previous fiscal year 2023/24, 240,000 units of debentures were traded. In the same period of the current fiscal year 2024/25, this figure surged to 1.332 million units, representing a 495 percent increase. Similarly, the transaction amount grew from Rs 234.7 million in last fiscal year to over Rs 1.397 billion in the current fiscal year.
Despite being traded sporadically in the past, debentures are now increasingly popular, with over 15 companies actively trading these instruments daily, according to NEPSE.
Securities expert and advocate Jyoti Dahal attributed the growing interest in debentures to the significant decline in fixed deposit interest rates. “Currently, the interest rate on fixed deposits is around 5 percent, while bonds offer an interest rate exceeding 8 percent,” Dahal said. “This disparity has encouraged investors to shift their focus toward bonds, driving the increase in bond trading.”
Most bonds provide semi-annual interest payments, and with mid-January approaching—marking the middle of the fiscal year—investors are keen to benefit from the next round of interest payments. “Investors purchasing bonds now will receive interest payments sooner, which has spurred trading activity,” Dahal added.
Madan Paudyal, managing director of NASA Securities, highlighted another reason for the increased demand for bonds. He explained that bonds offer a guaranteed return, making them an attractive option during periods of financial instability for many listed companies. “Given the uncertain financial health of several listed firms, investors are opting for bonds as a safer alternative,” Paudyal said.
Paudyal also noted that bonds issued by various banks are currently being actively traded. “Investors buying bonds within mid-January will secure interest for the ongoing quarter, further driving up trading activity,” he said. On Thursday, the last trading day of the week, NEPSE recorded the trading of 26 different bonds.
What is Debenture?
A debenture is a debt instrument issued by the government or a company, offering a fixed rate of return over a specific period. Companies that issue debentures typically pay interest semi-annually or annually. Even if the principal amount invested in debentures does not generate additional income, the interest payments are guaranteed.
Unlike fixed deposits or savings accounts, debentures provide a stable annual interest rate with minimal risk. Bondholders receive priority over ordinary and preference shareholders when it comes to interest payments. Even if a company incurs losses and cannot distribute dividends to shareholders, it is obliged to pay interest to its bondholders.
Redeemable debentures are bonds that pay both principal and interest at a predetermined time. Some debentures are convertible into shares, adding flexibility for investors. Such instruments are actively traded on the Nepal Stock Exchange (NEPSE), making them a prominent choice for risk-averse investors seeking consistent returns.
