Q.State the different methods by which a company may redeem its debentures.

A company can repay its debenture holders in more than one way, depending on the terms fixed at the time of issue and the funds available.

A company may redeem (repay) its debentures using any of the following methods, depending on what was agreed at the time of issue:

1. Payment in lump sum on maturity — the entire amount of debentures outstanding is repaid on a single date fixed at the time of issue.
2. Payment in instalments (by draw of lots) — a portion of the debentures outstanding is redeemed each year, the specific debentures to be redeemed often chosen by a draw of lots among the debenture holders.
3. Purchase in the open market — the company itself buys back its own debentures from the market, either to cancel them immediately or to hold them as an investment (in which case they can later be reissued or cancelled).
4. Conversion into new shares or new debentures — where the original terms of issue permit it, debenture holders can exercise an option to convert their holding into new equity/preference shares or into a fresh series of debentures, instead of being repaid in cash. …

Students sometimes list 'out of profits' and 'out of capital' as REDEMPTION METHODS themselves — these are actually the SOURCES OF FUNDS used to redeem, not methods of redemption. Keep the method (how the debenture holders are act …