FEATURES OF DEBENTURES OR BONDS


 Features of debentures or bonds:

(i) Face Value: Debentures or Bonds are denominated with some value; this denominated value is called face value of the debenture. Interest is calculated on the face value of the debentures. E.g. If a company issue 9% Non- convertible debentures of ` 100 each, this means the face value is ` 100 and the interest @ 9% will be calculated on this face value.

(ii) Interest (Coupon) Rate: Each debenture bears a fixed interest (coupon) rate (except Zero coupon bond and Deep discount bond). Interest (coupon) rate is applied to face value of debenture to calculate interest, which is payable to the holders of debentures periodically.

(iii) Maturity period: Debentures or Bonds has a fixed maturity period for redemption. However, in case of irredeemable debentures maturity period is not defined and it is taken as infinite.

(iv) Redemption Value: Redeemable debentures or bonds are redeemed on its specified maturity date. Based on the debt covenants the redemption value is determined. Redemption value may vary from the face value of the debenture.

(v) Benefit of tax shield: The payment of interest to the debenture holders are allowed as expenses for the purpose of corporate tax determination. Hence, interest paid to the debenture holders save the tax liability of the company. 

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