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Trading and Investment Terminology

Redemption

The term redemption has different uses in the finance and business world, depending on the context.

  1. In finance, redemption describes the repayment of any money market fixed-income security at or before the asset's maturity date. Investors can make redemptions by selling part or all of their investments such as shares, bonds, or mutual funds.
  2. In business and marketing, however, consumers often redeem coupons and gift cards for products and services.
  3. Mutual fund investors can request redemptions for all or part of their shares.
  4. Redemptions may trigger capital gains or losses.

Types of Redemption

  • In-kind Redemptions
  • Mutual Fund Redemptions

For example, 

              That an investor buys a $1,000 par value corporate bond at a discounted price of $900 and receives $1,000 par value when the bond is redeemed at maturity. The investor has a $100 capital gain for the year, and the tax liability for the gain is offset by any capital losses. If the same investor purchases a $1,000 par value corporate bond for $1,050 and the bond is redeemed for $1,000 at maturity, the $50 capital loss reduces the $100 capital gain for tax purposes.

 

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