What is meant by ‘Redemption out of Capital’?

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Solution

It refers to the condition when the debentures are redeemed from the capital without utilising the profits for redemption. Such a condition results in no profit being transferred to the Debenture Redemption Reserve, a reserve that needs to be created as debentures cannot be redeemed entirely from the capital. SEBI has issued guidelines for the redemption of debenture by creating Debenture Redemption reserve. However, there are some industries that are exempted from creating a reserve and they are:

1. Companies that issue debentures with maturity of 18 months.

2. Companies involved in infrastructure sector like maintenance, construction, business development activities.

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