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 XII · Chapter 2: Securities: Types, Features and Concepts of Asset Allocation and Investingintroduced here
- Series IV · Chapter 1: Introduction to Interest Rate, Interest Rate Instruments and Fixed Income Marketsintroduced here
- Series XXI-B · Chapter 4: Investing in Fixed Income Securitiesintroduced here
- Series II-A · Chapter 2: Characteristic of Equity Sharesintroduced here
- Series II-B · Chapter 1: Introduction to Securitiesintroduced here
- Series XXI-A · Chapter 4: Investing in Fixed Income Securitiesintroduced here
- Series V-A · Chapter 2: Concept & Role of a Mutual Fundintroduced here
- Series XV · Chapter 3: Terminology in Equity and Debt Marketsintroduced here
- Series V-D · Chapter 2: Concept & Role of a Mutual Fundintroduced here
- Series V-B · Chapter 2: Concept and Role of a mutual fundintroduced here
- Series II-B · Chapter 2: Characteristic of Equities
- Series V-D · Chapter 18: Introduction to Interest Rate, Interest Rate Instruments and Fixed Income Markets
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 corporate action that cuts the face value of a share in a defined ratio and multiplies the number of shares to match — more shares, a lower price, and not one rupee of new value.
- 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.
- Bonus sharesAdditional shares issued free to existing shareholders in proportion to their holding — no tax at allotment, a nil cost of acquisition, and a fresh holding period from the allotment date.
- Dividend yieldDividend per share divided by the share's market price — the cash income a share pays relative to what it costs today. It falls as prices rise and rises as they fall.
- Pull to parThe movement of a bond's price toward its face value as maturity approaches — premium bonds drift down to par, discount bonds drift up to par, and at maturity every bond is worth face value.
- Online Bond Platform ProviderA person operating an online bond platform — an electronic system, other than a stock exchange or EBP, where listed or to-be-listed debt securities are offered and transacted, chiefly for non-institutional investors.
- Redemption valueWhat the issuer pays at maturity other than the coupon. Above face value the bond is redeemed at a premium, below it at a discount, and equal to it at par.
- Equity Linked DebentureA debt instrument whose interest is tied to the return on an equity index or basket — the issuer parks most of the principal in bonds to protect capital and spends the rest on options to buy the equity upside.
- Differential Voting RightsEquity shares that carry less than one vote each, letting a company raise capital without diluting control — and letting an investor who does not want the vote buy the same economics at a discount.
- 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.
- Share premiumThe amount a company receives over the face value of a share when it issues shares above par — Rs 40 on a Rs 10 share sold at Rs 50. It is capital raised, not profit.
- Hybrid instrumentA security that combines features of both debt and equity in one instrument — the workbook's two examples are convertible debentures and preference shares.
- 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.
- Ownership rightsThe rights an equity shareholder gets as a part-owner of the company: ownership in proportion to shares held, one vote per share, and a claim on the residual profits after all expenses and provisions.
- Fixed rate or plain vanilla bondA bond with a fixed coupon paid at set intervals and the principal returned only at maturity — the plain, unmodified structure every other bond type in the workbook is defined against.
- Market value of a bondThe price at which a debt instrument actually trades before maturity — distinct from its fixed face value, and driven by demand-supply conditions and the prevailing level of market interest rates.
- 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.
- Scheme Re-Opening DateThe date after an open-ended scheme's NFO from which investors can buy new units or sell units back to the scheme at NAV-based prices. Close-ended schemes have no re-opening date.
- Ex-dividend NAVThe NAV of a scheme after an IDCW has been paid out, lower than before by the amount distributed. Reinvestment of the IDCW happens at this NAV.
- IndentureThe legal agreement between a bond issuer and its bondholders setting out every term of the debt — par value, coupon, maturity, collateral, seniority, options and covenants.
- Intrinsic value of a bondThe sum of the present values of all a bond's future cash flows, discounted at the investor's required rate of return. Buy if it exceeds the market price; sell if it is below.
- Perpetual bondA bond with no maturity date at all — it keeps paying coupons unless called, so it is valued as the present value of an endless coupon stream rather than as a bond that returns principal on a fixed date.
- DebentureIn Indian usage, a long-term debt instrument issued by a company, bank or financial institution — as opposed to a bond, the term reserved for debt issued by a government or its undertakings.
- Discount bondA bond whose market price sits below its par value because the prevailing market interest rate is higher than its coupon — a market-price condition of an ordinary bond, not a distinct bond type.
- Premium bondA bond whose market price sits above its par value because the prevailing market interest rate is lower than its coupon — the mirror image of a discount bond.
- 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.
- Distressed securitiesEquity, bonds or trade debt of a company that is near or in bankruptcy, or has suffered a massive credit-rating fall, trading at a steep discount because regulated investors are forced to sell.