Face value
Also written Par value · Nominal value · Face value (par value)
The denomination a company's capital is divided into and carried in its books — fixed, printed on the certificate, and the base on which dividend percentages and stock splits are computed.
In plain language
A company decides how much equity capital it needs, then chops that total into equal slices. The size of one slice is the face value, also called par value.
It is a bookkeeping number, not a market number. The share certificate says Rs 10; the exchange may say Rs 840. The first is what the company recorded when the capital was raised, and it does not move on its own. The second is what somebody will pay today.
Face value matters to a registrar for a very practical reason: dividends, splits, consolidations and bonus ratios are all computed on it, not on the market price.
How it works
The same amount of capital can be denominated in several ways. To raise Rs 10,00,000 a company may issue:
- one lakh shares of Rs 10 each, or
- two lakh shares of Rs 5 each, or
- ten lakh shares of Re 1 each.
The capital raised is identical in all three. Anything the company collects above face value is share premium — issue 1 lakh shares of Rs 10 face value at Rs 50, and Rs 10 is face value while Rs 40 is premium.
A stock split cuts face value down and multiplies the share count; a consolidation does the reverse. In both, the value of a holding is unchanged. Mutual funds borrow the same idea: the date of allotment is a scheme's inception date, and its NAV is set at face value on that date.
A worked example
A company has shares of face value Rs 2 trading at Rs 80, and declares a dividend of 60 percent.
The dividend is 60% of face value, not of market price:
| Step | Working | Result |
|---|---|---|
| Dividend per share | 60% × Rs 2 | Rs 1.20 |
| Dividend yield | Rs 1.20 ÷ Rs 80 | 1.5% |
An investor reading "60 percent dividend" and expecting Rs 48 a share has misread the base by a factor of forty. This is exactly why SEBI requires listed companies to declare dividends in rupees per share.
Now the split. Mr L holds 100 shares of face value Rs 10 of the same issuer, worth Rs 1,000 at par. The company splits each share into two of Rs 5:
- Before: 100 × Rs 10 = Rs 1,000
- After: 200 × Rs 5 = Rs 1,000
Nothing was created. In a consolidation it runs backwards — Mr S's 100 shares of Rs 2 (Rs 200) become 20 shares of Rs 10 (Rs 200).
Why NISM asks about it
Chapter 2 (Characteristic of Equities) introduces face value at the head of the equity terminology section and then uses it in every item that follows — share premium, paid-up capital, dividend, stock split and consolidation. Chapter 11 reuses it for a scheme's inception-date NAV. Expect a question that gives you a dividend percentage and a market price and asks for rupees per share or for the dividend yield, and a question that asks what a split does to the number of shares and to the value of a holding.
Common exam traps
- Dividend percentage is on face value, never on market price. The single most common slip in this chapter.
- Face value is not book value and not market price. It is the denomination in the books and on the certificate, and it is fixed until the company splits or consolidates.
- A stock split reduces face value and increases the share count; a consolidation increases face value and reduces the count. Candidates routinely invert the pair.
- Share premium is the excess over face value, so an issue at Rs 50 on a Rs 10 face value carries Rs 40 of premium, not Rs 50.
- A bonus issue does not change face value — it changes the number of shares. Only a split or consolidation moves the face value itself.
- In a mutual fund, NAV equals face value only on the inception date. From the next day it is a market-driven number.
Where this is taught
- Series V-B · Chapter 2: Concept and Role of a mutual fundintroduced here
- Series V-D · Chapter 2: Concept & Role of a Mutual Fundintroduced here
- Series II-A · Chapter 2: Characteristic of Equity Sharesintroduced here
- Series IV · Chapter 1: Introduction to Interest Rate, Interest Rate Instruments and Fixed Income Marketsintroduced here
- Series XV · Chapter 3: Terminology in Equity and Debt Marketsintroduced here
- Series II-B · Chapter 1: Introduction to Securitiesintroduced here
- Series V-A · Chapter 2: Concept & Role of a Mutual Fundintroduced here
- Series XII · Chapter 2: Securities: Types, Features and Concepts of Asset Allocation and Investingintroduced here
- Series V-D · Chapter 18: Introduction to Interest Rate, Interest Rate Instruments and Fixed Income Markets
- Series II-B · Chapter 2: Characteristic of Equities
Related terms
- Net Asset ValueThe net assets of a mutual fund scheme divided by the number of units outstanding — what one unit of the scheme is worth on a given day, after every liability except the unitholders' own.
- Stock splitA reduction of face value in a defined ratio, increasing the number of shares proportionately.
- Bonus issueFree allotment of units in a stated ratio.
- Corporate actionAn event initiated by a company that changes the securities it has issued — dividend, buyback, bonus, split, consolidation, rights issue or merger — and which the registrar has to execute investor by investor.
- New Fund OfferThe period in which a mutual fund scheme's units are offered to the public for the first time, at a fixed NFO price rather than at NAV, and during which the registrar builds the scheme's first register of investors.
- DividendThe distribution of profits by a company to its shareholders.
- UnitThe share of a mutual fund scheme that an investor's money is translated into — typically carrying a face value of Rs 10, and worth whatever the scheme's NAV is on the day.
- Yield to MaturityThe single discount rate at which a bond's future coupons and redemption amount add up to exactly its market price today — the return you actually earn if you hold it to maturity.
- Current yieldA bond's annual coupon in rupees divided by its current market price — the cash income the bond throws off this year, ignoring any gain or loss at redemption.
- Unit capitalThe number of units a mutual fund scheme has issued multiplied by their face value — an accounting figure that records what investors contributed, not what their holding is worth today.
- Coupon rateThe rate of interest a bond pays, applied to its face value and never to its market price — which is why the coupon tells you the cash flow but not the return.
- Credit riskThe risk that a borrower fails to meet its obligations on a debt instrument — the risk credit rating agencies exist to grade, and the one that triggers a segregated portfolio in a mutual fund.