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Question

What is meant by redemption of debentures?

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Solution

Redemption of debenture means repayment of debentures by the company to the debenture holders. In other words, it implies the discharge of liabilities by repaying the amount due to the debenture holders as per the terms and conditions determined at the time of issue of debentures. Debentures may be redeemable at par, premium or discount, but, nowa days, these are mostly redeemable at par or premium. The redemption can be done out of profits or from the fresh issue of debentures or shares. Redemption of debentures may be done by the following methods:

1. In lump sum at the time of maturity,

2. In instalments by draw of lots at the end of each year,

3. By purchase in open market whenever price is below its face value,

4. By converting debentures into shares or new debentures.


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