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Retractable Security

Updated on March 17, 2023

Retractable Security is a security which provides its holder an option to ask the issuer to redeem it at a specific price before maturity, subject to specified terms and conditions. In the case of preferred retractable shares, the holder can sell these back to the issuer for cash or instead for common shares of the company. Generally, these shares are redeemed close to the date of maturity. The terms and conditions for retractable preferred shares are explained clearly in the prospectus.Similarly, in the case of retractable bonds, the investor can ask for shortening the maturity date sensing adverse market conditions or if they are in immediate need of the principal. The retractable bond can thus protect the investor from any interest rate risk as well. The retractable bond comes with a put option, which gives the bondholder a right to redeem the bond for principal at the end of its lock in period. Retractable bond is thus known as put bond, putable bond, or puttable bond.