Methods of redemption of debentures.

Meaning: -As the debenture capital is borrowed capital it has to be paid back. The repayment of debenture amount to debenture holder is called as redemption of debentures. Every company is required to create a 'Debenture redemption reserve' for the purpose of redemption of debentures.

Methods of Redemption:

(1) Redemption after the term: Since debentures are issued for a specific term, redemption process is initiated nearing term completion by issue of notice to debenture holder about its date and other information. Debenture holder has to respond by filling a prescribed form to be sent to the company. Company proceeds to redeem thereafter.

(2) Redemption by Annual Instalments: Here, coupons are attached to debentures for
(1) Payment of Annual interest
(2) Repayment of capital / principal amount in annual instalments.
The debenture holder is required to sign the coupons and present it to the banker of the company for payment.

(3) Redemption by draw method: Company follows a lottery system to redeem. Debentures are divided in lots and drawn out.  The lot which is drawn out is due for redemption by informing them. This leads to staggered redemption.

(4) Redemption by own purchase method: Here, company buys its own debentures from open market at a certain price. The debentures bought this way are cancelled.

(5) Redemption by own purchase method:  Old / existing debentures are redeemed by making a fresh issue of debentures.