Can Corporate Debentures Substitute Fixed Deposits in Nepal’s Fixed-Income Market?

Despite being listed on the Nepal Stock Exchange (NEPSE), corporate debentures remain a marginal component of Nepal’s capital market. Their contribution to total market turnover is negligible when compared to equities and mutual funds, and secondary market activity is sporadic at best. While they are listed on the NEPSE and can be traded in the secondary market, actual trading volume is low, and investors often find it difficult to sell their holdings quickly or buy a sizeable quantity from secondary markets. Let’s have a look at past 12 months’ debenture trade data:

With exception of Kartik 2082, monthly debentures turnover doesn’t even account for 1% of monthly total NEPSE turnover. What could be the reasons for low trading volume in debentures?

Infrequent Trading: Unlike actively traded stocks, debentures often have few buyers and sellers on any given day. Transactions typically see a minor surge only during coupon (interest) payment seasons.

Investor Perception: Many general investors in Nepal perceive debentures as being similar to fixed deposits and often hold them until maturity for the fixed, stable returns, rather than actively trading them in the secondary market.

Lack of Awareness: A significant portion of the investing public lacks awareness about the tradability of debentures or the mechanisms to do so, preferring the more familiar and actively traded equity market for potential capital gains.