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Why is it necessary to invest 15% of the debenture redemption amount?

Question:

Why is it necessary to invest 15% of the debenture redemption amount?

Debentures

Debentures are referred to as an instrument that shows the agreement between the company and the investor. The company takes funds from investors and gives them an interest in a fixed interval and redeem principal value at maturity.

Answer and Explanation:

The companies (share capital and debenture rules) given under the companies act, 2013 stipulates that the companies or financial institutions shall have to deposit minimum 15% of the value of debentures due on next year, in the scheduled banks or invest the required amount in the government securities as specified. The amount shall have to be deposited or invested on or earlier to 30th April every year. The deposited or invested amount shall only be utilized for discharging the debentures obligations such as payment of interest or redeeming the debentures fallen due during the year. The provision of the act bounds the companies covered under this rule of the companies act. In case of non-compliance with the requirements, it can be liable for the penalties or the punishment as may be prescribed under the statute. Therefore it is necessary that the entity shall have to invest 15% of the debentures value.


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Sources of Long-Term Financing

from Business 100: Intro to Business

Chapter 23 / Lesson 4
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