What is Face Value?

Face value means the value that is openly mentioned on the financial instrument. It is the original amount that has been given to that instrument, mostly printed on the product itself. This value is determined by the issuer of the product.

For example, the face value of a 100-rupee note is Rs 100. The meaning of the face value can vary for different financial instruments, such as securities, stocks, and bonds.

Significance of Face Value in Investment

Face value holds relevance in determining the investment opportunities:

1. Valuation and Pricing: Face values are the basis of finding the price and value of fixed-income securities, such as bonds. It helps in determining the coupon payments. It allows the investors to know the correct value of the bonds. They can compare the yield to maturity of the bonds with their investment options.
2. Intrinsic Value Assessment: Face value gives a measure to find the intrinsic value of the shares of a company. Although the market value of the stocks can be changed by many factors other than face value, such as growth prospects and market sentiment.
3. Comparison of Investment Options: Face value is a great measure to compare the different investment alternatives. For example, the bonds of the same face value but different coupon rates, the investors choose those that give them the highest interest payments.

Difference between Face Value and Market Value

The face value is the nominal or original value of the product or financial instrument, which is determined by its issuer. Whereas, the meaning of market value is the current price of the financial instrument or product at which it can be sold or bought in the market.

One thing to keep in mind is that for a particular financial instrument, the market value can be higher or lower than the face value. If the market value is lower than the face value, then it is known as trading at a discount. If the market value is higher than the face value, then it is known as trading at a premium.