Stock Market vs. Fixed Deposits: What Should You Choose in Nepal?

Introduction

As a Nepali investor, you're often faced with a choice: invest in the stock market or go for fixed deposits (FDs) in banks and financial institutions. While both options have their advantages, they are fundamentally different in terms of risk, return, liquidity, and suitability.

In 2025, with inflation rising and NEPSE showing moderate recovery, this decision is more important than ever. Let’s break down how each investment works in Nepal and which one may be the better fit for your financial goals.

1. How Do Fixed Deposits Work in Nepal?

A fixed deposit is a secure investment option where you deposit money in a bank or financial institution for a fixed period, earning a guaranteed interest rate.

📌 Key Features:

• Low risk (insured by the bank)

• Fixed returns (typically 7%–10% per annum in 2025)

• Maturity flexibility (from 3 months to 5+ years)

• Taxable income (subject to TDS)

✅ Best For:

• Risk-averse investors

• Retirees or income-focused individuals

• Short-to-medium-term savings goals

2. How Does the Stock Market Work in Nepal?

The Nepal Stock Exchange (NEPSE) is where public companies list their shares for trading. Investors buy shares hoping they will appreciate in value or provide dividends.

📌 Key Features:

• High return potential (10%–25% annually, historically)

• Volatility risk (market can go up or down)

• Liquidity (can sell anytime during trading hours)

• Dividends (cash or bonus shares)

✅ Best For:

• Long-term wealth building

• Investors willing to accept risk

• People who can analyze markets or take advice

3. Return on Investment (ROI): Which One Performs Better?

📊 While FDs provide stable returns, NEPSE investments have historically outperformed them in the long run—if chosen wisely.

4. Risk Comparison

Fixed Deposit:

• Safe and predictable

• No chance of capital loss unless the institution collapses

Stock Market:

• Prices fluctuate daily

• Risk of losing capital if stock underperforms or the market crashes

• Dependent on economic and political factors

🛑 In NEPSE, companies in hydropower or microfinance can swing 10% in a day. With FDs, your money stays steady.

5. Liquidity & Accessibility

FDs are easier for beginners, while stocks require a basic understanding of how NEPSE functions.

6. Tax Implications

• FD Interest: Subject to 5% TDS for individuals

• Stock Gains:

  • 5% Capital Gains Tax on secondary market profit

  • No tax on IPO gains up to NPR 1 million (if sold within fiscal year)

💡 You can save on taxes if you apply for IPOs and sell within thresholds.

7. Inflation Protection

Fixed deposits offer fixed returns, but inflation can eat into your real purchasing power. If inflation is 8% and your FD pays 9%, your real return is only 1%.

The stock market, on the other hand, has the potential to beat inflation over the long term due to growth in asset value and dividends.

8. Emotional and Behavioral Factors

• FD investors are usually passive and sleep peacefully at night.

• Stock investors must control fear and greed, avoid panic-selling, and stay informed.

If you can't handle watching your money fluctuate, FDs are better. But if you're comfortable with market ups and downs, stocks may yield better rewards.

9. Combining Both: The Smart Strategy

Why not use both?

• Put emergency funds and short-term savings in FDs

• Use stocks for long-term wealth creation

Example Allocation:

• 60% Fixed Deposit (for safety, emergency, short-term goals)

• 40% Stocks (for higher returns, retirement, wealth building)

Adjust the ratio based on your risk tolerance.

10. Real Investor Scenarios

👩‍🎓 Beginner Investor (Age 25)

• Monthly income: NPR 40,000

• Goal: Build long-term wealth

• Suggested: 70% in stocks, 30% in FDs

👨‍👩‍👧‍👦 Middle-Aged Couple (Age 40–50)

• Planning child’s education

• Suggested: 50% FDs, 50% diversified stocks

👵 Retired Individual (Age 65+)

• Needs regular income

• Suggested: 80–90% in FDs, 10–20% in dividend stocks

Conclusion: What Should You Choose in Nepal?

There’s no one-size-fits-all answer. Both fixed deposits and stocks have a place in a well-planned financial strategy.

Ultimately, your risk appetite, financial goals, age, and investment knowledge will determine the right mix for you.