Call Date vs Maturity Date for bonds?

Bonds
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Call Date vs Maturity Date for bonds?

@GoldenPi

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Hi Madhavaditya,

Maturity Date : Official date on which a Bond matures ( as per the filing done by the Bond Issuer with RBI/ SEBI)

Call Date : This is an option that a Bond Issuer can opt for. Say , the Bond Issuer is raising money at 10% interest rate ( given that the risk free rate is around 6.5%) by issuing a Bond tranche. However, there is possibility that the risk free rates will go down in the future. Then the Bond Issuer would like to call off the Bonds as he can raise money at lower interest rates then. Seeing this economic possibility, he then places a call option so that, if such situation arises in future, the issuer can call back the Bond. This is the Call Date

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Thanks @GoldenPi , Appreciate if you could clarify the below points as well.

  1. When the Issuer decides to exercise a bond call, how does it normally happen in India? Does the Issuer call back the entire quantity of bonds issued or do they do a partial call back?

  2. How is the bond holder notified when the Issuer decides to exercise a bond call? Is it through sms, email, post, news media etc ?

  3. When the Issuer exercises a bond call, is the redemtion procedure automated? or are they any online/offline paperwork to be done by the buyer.

  4. In case of pre-mature bond call, is it obligatory for the buyer to surrender the bond, or does the buyer can hold till maturity and earn interest at the coupon rate agreed on issue?

  5. Finally, When the bond matures at the actual maturity date, is the redemption process fully automated? Does the Buyer get back the Principal money automatically transferred back to bank account, Or are there any online/offline paperwork to be completed for redemption at maturity?

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@Madhavaditya

That’s a lot of questions in one day : )

Sure, happy to answer your queries:

  1. When the Issuer decides to exercise a bond call, how does it normally happen in India? Does the Issuer call back the entire quantity of bonds issued or do they do a partial call back?

Ans : - The Bond issue has the Call Date mentioned. When the issuer decides to exercise option to call back, it sends a mailer to all bond holders intimating them of the same. On the call date, the whole principal amount (face value X no. of #) + an outstanding interest to paid is credited to the bond holder’s account.

  • 100% of the trance is called back, in general.
  1. How is the bond holder notified when the Issuer decides to exercise a bond call? Is it through sms, email, post, news media etc ?

Ans : Email, Post, news media – all ways. If you have invested through GoldenPi, GoldenPi will also intimate you of the same.

  1. When the Issuer exercises a bond call, is the redemption procedure automated? or are they any online/offline paperwork to be done by the buyer.

Ans :

  • Yes it is automated.

  • NO paperwork. All bonds and debentures in India re now in demat form. Hence no paperwork involved.

  1. In case of pre-mature bond call, is it obligatory for the buyer to surrender the bond, or does the buyer can hold till maturity and earn interest at the coupon rate agreed on issue?

Ans : No, when the buyer is buying a callable bond, he/she is agreeing to the exercise option of call back by the issuer.

Finally, When the bond matures at the actual maturity date, is the redemption process fully automated? Does the Buyer get back the Principal money automatically transferred back to bank account, Or are there any online/offline paperwork to be completed for redemption at maturity?

Ans :

-Yes the redemption process is fully automated.

  • Principal amount (Face value X no. of #) +any outstanding interest payment as on the maturity date is automatically credited to the Bank account of the Bond Holder. No paperwork is involved for the bond holder.
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