Contents
Definition
Face value (also called par value, nominal value, or redemption value) is the principal amount printed on a bond that the issuer promises to repay in full at maturity. It is the contractual anchor from which all other bond economics are derived. In India:
- G-Secs: standard face value is ₹100 per unit (minimum tradeable lot ₹10,000 in RBI Retail Direct).
- Corporate bonds (exchange-listed): ₹1,000 face value is the standard; SEBI permits smaller denominations for retail-targeted issuances under NCS Regulations 2021.
- Institutional corporate bonds: face value of ₹10 lakh or ₹1 crore per bond is common in wholesale (private placement) markets.
Face value is distinct from market price: a bond may trade at 98 (below par = at a discount), 100 (at par), or 103 (above par = at a premium) depending on how current market yields compare to the bond's coupon rate.
How it is computed
Face value is not computed — it is fixed at issuance. However, its relationship to market price is critical:
| Condition | Market price vs FV | YTM vs Coupon rate |
|---|---|---|
| At par | Price = ₹100 | YTM = Coupon rate |
| At discount | Price < ₹100 | YTM > Coupon rate |
| At premium | Price > ₹100 | YTM < Coupon rate |
The dirty price (invoice price) that actually changes hands equals the clean price plus accrued interest. Accrued interest = Coupon Rate × Face Value × (Days since last coupon / Day-count basis). At maturity, the issuer pays exactly face value regardless of the price at which the bond traded during its life. For inflation-indexed bonds (IINSS-C), the face value is adjusted upward with the CPI index ratio, so the redemption amount exceeds the original face value in nominal terms.
Why it matters for investors
Face value anchors multiple calculations investors rely on: (1) Coupon receipt: annual interest = coupon rate × face value — not coupon rate × purchase price. A 7% bond bought at ₹95 still pays ₹7 per ₹100 face value, yielding a current yield of 7.37% (7/95). (2) Capital gain/loss: if an investor buys at ₹95 and holds to maturity to receive ₹100, the ₹5 gain is taxable as capital gains (long-term if held >12 months for listed bonds under §112 / §50AA post-Finance Act 2023). (3) Duration calculation: the face-value redemption cash flow is the largest single payment and has an outsized effect on Macaulay Duration. (4) Mutual fund NAV: debt fund NAV is marked to market daily — rising yields push bond prices below face value, reducing NAV even though face value is ultimately recovered at maturity (for held-to-maturity portfolios).
Worked example
An investor purchases ₹5 lakh face value of the GoI 7.26% 2033 G-Sec at a clean price of ₹99.50 with 60 days of accrued interest:
- Accrued interest = 7.26% × ₹5,00,000 × 60/365 = ₹5,975
- Invoice price = (₹99.50/₹100) × ₹5,00,000 + ₹5,975 = ₹4,97,500 + ₹5,975 = ₹5,03,475 total outflow
- Annual coupon received = 7.26% × ₹5,00,000 = ₹36,300 (regardless of purchase price)
- At maturity in 2033, the GoI pays exactly ₹5,00,000 face value — the ₹2,500 discount (₹5,00,000 − ₹4,97,500) accretes as a capital gain
Caveats
Do not confuse with market value: Face value is constant (except for index-linked bonds); market value fluctuates daily. DEMAT holding statements from depositories (NSDL/CDSL) display both face value and market value — novice investors sometimes mistake the face value column for current worth. Corporate bond restructuring: In SEBI-supervised resolution proceedings (e.g., under the IBC), face value may be partially written down — the contractual promise of full redemption can be altered through a court-approved scheme. Inflation-indexed bonds: the inflation-adjusted principal exceeds original face value, so redemption proceeds will be higher than the stated face value in the offer document.
See also
- Coupon (Bond)
- Yield to Maturity (YTM)
- Zero-Coupon Bond
- Inflation-Indexed Bond
- Tax on Investments in India
Primary source
- SEBI NCS Regulations 2021 (face-value disclosure requirements): sebi.gov.in — NCS Regulations 2021
- RBI Retail Direct — G-Sec face value and settlement: rbi.org.in — Retail Direct
- Income-tax Act §112, Finance Act 2023 §50AA (capital gains on bonds)
MintByte is registered with AMFI (ARN-314872) and APMI (APRN-01658). This glossary entry is for educational purposes only and does not constitute investment advice or a recommendation to buy or sell any security.