Fully convertible bonds and partially convertible bonds are subjected to the following
SEBI guidelines.
The price with time shall be stated in the prospectus itself. Conversion will be optional at
the hands of the bond holder, if it takes place between 18 to 36 months. Conversion is
must with ‘put’ and ‘call’ options, if the conversion period is more than 36 months. If the
conversion period exceeds 18 months credit rating is compulsory.
16.3 The convertible bonds are of three types;
a) Compulsory convertible bonds with conversion option within 18 months.
b) Optionally convertible bonds with conversion option within 36 months.
c) Bonds carrying ‘call’ and ‘put’ features for conversion after 36 months.16.4 On a compulsorily convertible (partly or fully) bond, an investor will receive a
certain number of equity shares on part/full conversion and certain stream of
interest and principal repayments. Therefore the value of such a bond is equal to
the present value of equity shares receivable on conversion plus the present value
of interest and principal payments receivable on the bond.
16.5 An optionally convertible bond may be viewed as a bond-warrant package. The
value of optionally convertible bonds is a function of the following factors.
- Straight bond value
- Conversion value
- Option value
16.6 In case of Straight Bond value the value is that of discounted value of the interest
and principal repayments receivable on it. The value of a straight bond varies
directly with the value of the firm. The maximum value of a straight bond would
be limited to the value of an equivalent risk-free bond.
16.7 The conversion value is equal to the stock price multiplied by the conversion rate.
16.8 In the case of Option value, the holder of a convertible bond cannot be compelled
to sell. He can wait and choose the most profitable alternative.
- Public Provident Fund:
17.1 The features of Public Provident Fund (PPF) scheme from the taxation point of
view are as follows:
17.2 Benefits under sections of the Income Tax Act is limited to Rs.60, 000 i.e., a tax
rebate of 15 percent of the annual subscription. The interest on PPF is exempted
from taxes. Withdrawals are not subject to I.T.