CAPM spotlights debentures as long-term wealth strategy

CORPORATE Capital Market Ltd., hosted a webinar yesterday on 'Debentures as a wealth strategy' to educate uninitiated investors on how corporate debt instruments can provide steady income, protect against inflation, and diversify long-term portfolios.

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The session featured Colombo Stock Exchange (CSE) CEO Designate Vindhya Jayasekera, NDB Investment Bank Chief Operating Officer Kaushini Laksumanage, and Nestor Stockbrokers Managing Director Nandun Jayatillake. Together, they mapped out the role of debentures in diversifying investment portfolios, the features of different types of instruments now available in Sri Lanka, and the practical steps for investors to participate in the market.

Jayasekera drew a distinction between saving and investing, stressing that households often focus on short-term goals through savings accounts or fixed deposits, which historically deliver returns below inflation. She noted that deposit rates over the past two decades averaged about 8% while inflation averaged closer to 9%. “If I can’t beat inflation, I won't be able to maintain the same lifestyle after retirement,” she said.

She explained that debentures function as long-term loans raised by companies through the capital market, with investors becoming creditors entitled to periodic interest, known as coupons, until maturity. Unlike shareholders, debenture holders have no ownership rights but enjoy priority claims in the event of liquidation. Most listed debentures are issued at Rs. 100 per unit, pay fixed or floating coupons on a monthly, quarterly, semiannual, or annual basis, and return principal at maturity.

According to Jayasekera, a comparison between fixed deposits and debentures illustrates their advantages. A five-year deposit at 10% yields an effective annual return of 8.45% if left untouched, while a comparable debenture paying semiannual coupons allows investors to reinvest interim cash flows, producing higher overall returns. She pointed out that although both pay nominally 10%, the structure of debentures can generate more value.