What’s a call feature?

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Calling features in callable bonds describe the process of redemption or early withdrawal. The call feature specifies when the debtor can redeem the bond, the additional interest the bondholder will receive, and the payment terms for early retirement.

Calling features are the sections of the terms and conditions associated with callable bonds that describe the process by which the bond can be redeemed or early withdrawn. A call feature is a unique component of the callable bond, which is sometimes called a callable bond. The recall feature is not part of the sunk bond offerings.

The call feature covers the details of at what point in the process the debtor can redeem a callable security. The callable title generally has to be in effect for a specified period of time before it is possible to request an early redemption. As an example, a ten-year bond cannot be called any time before the issue of the bond is at least five years old. Specifying that the bond must reach a certain level of maturity before the borrower can call it guarantees the investor the ability to earn at least a minimum amount of profit from the venture.

Second, the purchase recourse clause associated with a bond issue also generally defines the amount of additional interest the bondholder will receive from the borrower at the time of purchase. This amount is usually a combination of the bond’s par value, interest accrued to the date of the redemption request issued by the borrower, and any percentage above that amount offered by the borrower as compensation for the early purchase.

Lastly, the call feature usually specifies the payment terms associated with early retirement from the bond issue. Essentially, this allows the bondholder to anticipate when they expect to receive payment from the debtor and thus be able to waive the bond issue in full. This allows the bondholder to plan when funds realized from redeeming the bond issue can be used for new investment opportunities.

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