Introduction

Par Value, also known as face value, is the nominal amount printed on a bond certificate that represents the amount the bond issuer agrees to repay the bondholder at maturity. It is the foundation for determining the bond’s interest payments, and a critical element in bond pricing and valuation.

In India’s debt markets, understanding par value is essential for both retail and institutional investors, especially when bonds are bought or sold at discounts or premiums relative to their face value.

What Is Par Value in a Bond?

• Par value is the fixed amount the issuer will return to the investor when the bond matures. It also serves as the base on which interest (coupon) is calculated.
• For example, if a company issues a bond with a par value of ₹5 lakh for a term of 10 years, it means the issuer promises to repay ₹5 lakh to the investor at the end of 10 years, regardless of the bond’s market price or issue price.

Key Characteristics of Par Value

• Fixed Value: Par value does not change over the life of the bond.
• Repayment Amount: This is the principal amount the investor receives at maturity.
• Coupon Calculation Base: The interest paid on the bond is usually a percentage of the par value.
• Not Affected by Market Price: Par value is different from the price at which the bond is bought or sold in the market.

Par Value vs Issue Price

While par value is fixed, bonds can be issued at a price above or below the par value depending on the interest rate environment and investor demand.

• If a bond is issued below par, it is said to be issued at a discount.
• If a bond is issued above par, it is issued at a premium.

For example:

• A ₹1,000 par value bond may be issued at ₹950 (discount) or ₹1,050 (premium).
• However, at maturity, the issuer will still repay ₹1,000 regardless of the issue price.

Why Par Value Matters to Investors

• It sets expectations for maturity value and coupon payments.
• Helps in calculating the yield to maturity (YTM).
• Useful in comparing bonds with different prices and coupon structures.
• Essential in understanding the tax implications on capital gains or interest income.

Par Value in the Indian Bond Market

In India, bonds and debentures are commonly issued with a par value of ₹1,000 or ₹1 lakh, depending on the nature of the bond and the issuer. Government securities (G-Secs), corporate bonds, and tax-free bonds all carry par values that are declared in the offer documents.

Investors purchasing bonds through platforms like RBI Retail Direct, NSE, BSE, or private distribution portals will find the par value clearly mentioned along with the market price and accrued interest.

Conclusion

The Par Value of a bond is a fundamental concept that every investor should understand. It represents the amount that will be repaid at maturity, and acts as a baseline for interest calculation, bond pricing, and return analysis.

Although bonds may be issued or traded at prices above or below par, the par value remains unchanged and guarantees the principal repayment. In the Indian bond market, being clear about par value can help investors make informed decisions, especially when evaluating yields, premiums, and discounts across various fixed-income instruments.