Face value

Face value — also called par value or principal — is the amount a bond represents: the sum the issuer has borrowed per bond and promises to repay at maturity. Coupons are calculated on face value, whatever price the bond trades at.

Why it matters

Face value is a bond’s fixed reference point. Market prices move around it — above it (at a premium) when the bond’s coupon is attractive compared with current rates, below it (at a discount) when it isn’t. As maturity approaches, and assuming the issuer pays, the price converges towards face value.

How to read it

• Price vs face value. Bond prices are often quoted as a percentage of face value; a price of 98 means 98% of face value.
• Premium or discount. Paying more than face value means you get back less than you paid at maturity — a loss offset by the higher coupons. Paying less means a gain at maturity.
• Coupon is on face value. An 8% coupon on ₹1,000 face value is ₹80 a year, regardless of your purchase price.

Common misconceptions

• “Face value is what the bond is worth.” It is what the issuer owes at maturity. What the bond is worth today is its market price.
• “Face value of shares works the same way.” Shares also have a face value, but it has little bearing on their market price or on what you receive.

In India: Face values vary by instrument. Government securities are typically quoted per ₹100 of face value, while corporate bonds come in a range of denominations set out in the offer or information document.