FAQs

Bonds

06 Mar 2003

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ous option. Some issues also offer what is known as 'Put and Call option.'

Under the Put option, the investor has the option to approach the issuing entity after a specified period (say, three years), and sell back the bond to the issuer.

In the Call option, the company has the right to recall its debt obligation after a particular time frame. For instance, a company issues a bond at an interest rate of 12 per cent. After 2 years, it finds it can raise the same amount at 10 per cent. The company can now exercise the Call option and recall its debt obligation provided it has declared so in the offer document.

Similarly, an investor can exercise his Put option if interest rates have moved up and there are better options available in the market.