5 Reasons Why Debentures are Unpopular in Nepal?

August 23, 2019 | DWAIPAYAN REGMI

A debenture is a long-term security that yields a fixed rate of interest, issued by a company. It is secured against the assets of the company. After monetary policy for this fiscal year raised the issue over the issuance of debentures, banks have been gradually coming up with debentures in a series.

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Debenture has equal charm as shares in countries abroad. But, seeing Nepalese investment practices – it can be stated that they are not yet popular. Debentures still go undersubscribed. Although risk-free, people don’t seem to be attracted to it.

Reasons for unpopularity

Debentures are not glorified to enlighten the glow out of them. The following are prime reasons why debentures are unpopular in Nepal.

1. Lack of Awareness:

An important reason why debentures go under-subscribed in Nepal is because of a lack of awareness. People are unaware in regards to debentures. They don’t know how to deal with it. Nor do they know if it is tradable or not. People have not yet realized that it is a good option for a normal deposit or fixed deposit. They don’t know what debenture is all about keeping a large mass under a huge confusion.

2. Unscientific Interest Rate:

The market is currently offering an interest rate on Fixed deposits at 9.75%. This was a fall down which reached 13% a few months back. A clear indication – about uncertainty over fixed price in upcoming days. So, why should someone opt for debenture which is just .25% greater? It seems that the interest rate on debentures is rising, but people have a belief that this interest rate on Fixed Deposit will rather move above in upcoming days. As a result, debentures are still under the confusion. Rise of the rate by 0.25% of Macchapuchre Bank’s Debenture made it oversubscribed.

3. Nature/Choices of Investors:

People have an interest in gambling. So, certain fixed income is not the choice of people on a general basis. People are rather motivated for capital gain along with dividends. Hence, debentures don’t fall under their preference. Despite the fact that debentures are as good investment alternatives as to the stocks, they are not yet known in detail to the people. Choices entirely differ with people’s perception and people still seek stock that carries risks and high returns. Investors in the Nepalese market are rather of interest with high risk and high return.

4. Ownership Issue:

What the mass has understood is that debenture holders are just creditors and not the owners. As a result, they don’t have any voting rights, nor do they have any sort of other rights regarding ownership. They are liable for that limited bunch of interest and that is it. This has led to the feeling that there is nothing with ‘assets acquisition’ while purchasing debentures. All ending up, in ownership issue and with less charm over debentures in the Nepalese Share market.

5. High Price:

Unlike mutual funds or share markets – Debentures are not easily affordable. One has to make a purchase of at least 25 units with a par value of Rs 1000 each. Now, that is a huge sum for average Nepalese investors. People don’t even think of giving it a try. It then appears that they are freezing a huge bunch of money-losing opportunity costs thereby. One significant aspect over this is because of the same – where people hesitate investing a large sum despite no risk. They would rather wait for a few IPOs or invest in the secondary market while the market is falling.

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