One of the many advantages of investing in fixed-income securities is that investors receive regular fixed rate interest payments. An investor can choose to redeem these payments before the maturity date or wait until the security has fully matured.
If an investor decides to wait until the security’s maturity date, they will receive the par value or the face value of the security. With this in mind, the full repayment of a bond’s principal amount plus any interest owed forms what is referred to as the bond redemption.
In the case of a corporation wishing to issue a bond, investors in the security can receive payment or the redemption value when the corporation secures enough finances to allow them to buy back their securities on or before the maturity date. The interest payments made to investors stops before this action is carried out, in most cases.
The redemption value of a bond is usually greater than a bond's par value. Therefore, the redemption of a bond (also known as a called bond) is at a price above par.
In order for an investor to request and execute a redemption, they must first communicate this request to their fund manager in order to begin the proceedings. This fund manager must act within a certain amount of time in order to process this request before distributing the funds to the investor. These funds are normally made up of the current market value of their shares or units, minus any fees and charges.