IPO Is Not the Only Investment Option; Introduction to Debenture for New Investors (With Upcoming Issues)

Just like the NEPSE index, the IPO craze in Nepal has reached its all-time high. According to CDS and Clearing Limited's official website, there are a total of 26,10,862 beneficial owner's Demat accounts.

If we compare this with the data of a few months ago, the number of new investors we received in the last six months exceeds the total number we received in the last six years. Investors who have been investing since long probably despise these newbies in a light hearted way: they reduce the chances of being allotted in an IPO. However, from an unbiased, patriotic perspective, this is only the start of a wonderful future.

Most investors who who opened Demat accounts for IPO and online trading accounts for investing are youths. The capital market and Nepal's future lean on their maturing shoulders. At Sharesansar, we receive article submissions about technical analysis, quantitative investing, algorithmic trading, and short-selling from the brightest of young investors. This will obviously encourage NEPSE and the regulatory body to keep up with the growing maturity of Nepal's investors and international practices.

Investing in an IPO is a profitable decision, thanks to the amazing companies that have gone public in the last decade. At the same time, a different form of investment alternative is flourishing along: Debentures. At times shadowed by the glamorous IPOs, a beginner investors should know about this investment alternative that, unlike IPO of companies, is completely risk-free.

What is a Bond/ Debenture?

In corporate finance, a debenture is a medium- to long-term debt instrument used by companies to borrow money at a fixed rate of interest. Simply put, you get paid a certain percentage returns each year for your money that you let them use. Although this might feel like depositing money at the bank, debentures pay higher than the interest rates on banks and financial institutions.

Both corporations and governments frequently issue debentures to raise capital or funds. Governments typically issue long-term bonds—those with maturities of longer than 10 years. Considered low-risk investments, these government bonds have the backing of the government issuer. Corporations also use debentures as long-term loans.

Investing in the shares of companies certainly feels more lucrative than investing in boring bonds or debentures. However, as much profit potential that investing in the secondary market carries, they have equal downsides. The stock market is a place to lose money as much as it is to gain. On the other hand, a debenture is a dead-simple method of investing where you get a considerable percentage of returns by depositing your money, doing virtually nothing.

I am convinced. How to apply for a Debenture?

Luckily, the Debenture scenario of Nepal is also inching along with the IPO hype. More and more institutions are issuing debentures to fulfill the need of capital. Since these companies invest in Nepal themselves, investors will likely get a sense of contribution to the country by investing in these fixed-income alternatives.

As of writing, the Securities Board of Nepal has a total of 6 debentures in its approved list. Once the date of issue of these debentures is announced, you can invest in one just like you invest in an IPO.

1) 8.5%, 7 years, Nepal Investment Bank Bond 2084

Total units: 40,00,000
Public Issue units: 16,00,000
Private Placement units: 24,00,000
Issue Manager: RBB Merchant Banking Ltd.
Approval Received On: 2077/08/18

2) 9.5%, 8 years, Manjushree Finance Ltd. Debenture 2085

Total units: 5,00,000
Public Issue units: 2,00,000
Private Placement units: 3,00,000
Issue Manager: NIBL Ace Capital
Approval Received On: 2077/09/26

3) 8 years, 8.75% Prime Debenture 2085

Total units: 35,00,000
Public Issue units: 14,00,000
Private Placement units: 21,00,000
Issue Manager: RBB Merchant Banking Ltd.
Approval Received On: 2077/09/26

4) 10 years, 9% Kamana Sewa Bikas Bank Ltd. Debenture 2087

Total units: 10,00,000
Public Issue units: 4,00,000
Private Placement units: 6,00,000
Issue Manager: NIBL Ace Capital
Approval Received On: 2077/10/02

5) 4%, 7 years, Krishi Rinpatra

Total units: 60,00,000
Public Issue units: 24,00,000
Private Placement units: 36,00,000
Issue Manager: NIBL Ace Capital
Approval Received On: 2077/10/04

6) 9.5%, 10 years, NCC Rinpatra 2086

Total units: 30,00,000
Public Issue units: 12,00,000
Private Placement units: 18,00,000
Issue Manager: NIBL Ace Capital
Approval Received On: 2077/10/05