Under this method, Sinking Fund or Debenture Redemption Fund of an equal amount is created out of profits every year. The amount to be credited to sinking fund is calculated with the help of Sinking Fund Table. This fund is invested out-side the business in securities every year.
What is debenture redemption funds?
Debenture Redemption Reserve (DRR) is a fund maintained by companies that have issued debentures. Its purpose is to minimise the risk of default on repayment of debentures. The DRR ensures availability of funds for meeting obligations towards debenture-holders.
How do you do redemption of debentures?
- Lump-sum payment on a prefixed date. This one-time method is considered to be among the simplest redeeming options. …
- Payment in annual instalment. …
- Debenture redemption reserve. …
- Call and put option. …
- Conversion into shares. …
- Buy from the open market.
Which account is used for redemption of debentures?
This debenture redemption reserve is a capital reserve account. It is funded by the divisible profits of each year, i.e. a portion of the profits are set aside for this purpose. This account can only be utilized for the purpose of redemption of debentures and for no other purpose.
How is investment debenture redemption calculated?
The amount of debentures to be redeemed every year is generally calculated by dividing the total amount of debentures by the number of years for which they have been issued. The debenture-holders whose slips have been taken out are then repaid at par or premium, depending upon the terms of issue.
Why do we create DRR?
A debenture redemption reserve (DRR) is a provision stating that any Indian corporation that issues debentures must create a debenture redemption service in an effort to protect investors from the possibility of a company defaulting.
Is debenture a debt?
A debenture is a type of debt instrument that is not backed by any collateral and usually has a term greater than 10 years. … Both corporations and governments frequently issue debentures to raise capital or funds. Some debentures can convert to equity shares while others cannot.
What is not a type of debentures?
6. Non-redeemable Debentures: Non-redeemable Debentures cannot be redeemed in a Company’s lifetime. Non-redeemable Debentures are only paid back on company’s liquidation.
How do you make a debenture?
You need to have the usual trading and a demat account to buy a non convertible debenture (NCD). The process to buy a NCD is the same as that for a share. You log into your trading account or ask your broker to buy you an NCD on your behalf. The manner in which you buy and the brokerage is the same as that for shares.
What is the difference between DRR and DRI?
DRI is created on or before 30th april of the financial year in which the debentures are due for redemption and DRR is created any time before the redemption of debentures. that means DRR cam be created any time before or after the creation of DRI.
How many types of debenture on the basis of security?
There are various types of debentures like redeemable, irredeemable/perpetual, convertible, non-convertible, fully secured, partly secured, mortgage, unsecured, naked, first mortgaged, second mortgaged, the bearer, fixed, floating rate, coupon rate, zero coupon, secured premium notes, callable, puttable, etc.
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Is DRR a free reserve?
No. The capital reserves, revaluation reserves, debenture redemption reserves, securities premium and statutory reserves do not form a part of free reserves.
How many types of debentures are on the basis of redemption?
Secured and Unsecured, Registered and Bearer, Convertible and Non-Convertible, First and Second are four types of Debentures.