Why debenture redemption reserve is created?

A DRR requires the corporation to create a debenture redemption service to protect investors from the possibility of a company defaulting. This rule offers investors a measure of protection because debentures are not backed by an asset, a lien, or any other form of collateral.

What are the uses of debenture redemption reserve?

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 debenture redemption investment are created?

When the debenture issuing company create a reserve for the process of redemption of debentures then it is known as Debentures Redemption Investment. Generally, the investment amount is at least 15% of the nominal value of the debentures to be redeemed during the financial year.

Which type of account is debenture redemption reserve?

Company may invest this money in secured and profitable projects. Debenture redemption reserve account is liability account of company.

Why is DRI created?

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.

Is it compulsory to maintain a debenture redemption reserve?

A debenture redemption reserve (DRR) is a requirement imposed on Indian corporations that issue debentures. … A company may only use the funds deposited in the DRR for the purpose of the redemption of debentures.

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.

Is DRR and sinking fund same?

Debenture Redemption Reserve (DRR) is not a method, rather it is a reserve that is to be maintained by the companies before starting the redemption process. On the other hand, Sinking Fund method is a method through which debentures are redeemed. … Thus, DRR and Sinking Fund method are not the same thing.

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.

How capital redemption reserve is created?

When a company decides to redeem the redeemable preference shares out of the profits that are otherwise available for paying dividends, it needs to create the Capital Redemption Reserve A/c. The amount in the Capital Redemption Reserve is equal to the nominal value of the redeemable preference shares.

How DRI is created?

Direct reduced iron (DRI), also called sponge iron, is produced from the direct reduction of iron ore (in the form of lumps, pellets, or fines) into iron by a reducing gas or elemental carbon produced from natural gas or coal. Many ores are suitable for direct reduction.

What percentage of DRR is created?

Section 71(4) read with Rule 18(1)(c) of the Companies (Share Capital and Debentures) Rules, 2014 requires every company issuing redeemable debentures to create a debenture redemption reserve (“referred to as DRR”) of at least 25%/10% (as the case maybe) of outstanding value of debentures for the purpose of redemption …

Can debentures be redeemed before maturity?

This one-time method is considered to be among the simplest redeeming options. As per this method, debenture holders receive the promised sum on the prefixed date. … The issuing company may decide to pay off the debenture amount before its maturity.