Maturity Value is the total amount payable to the holder of a financial instrument at the end of its term, including principal and accrued interest.
In finance and wealth management, understanding maturity value is critical for evaluating fixed-income investments and planning liquidity needs. The maturity value is distinct from market value or book value because it exclusively describes the contractual payout at maturity, irrespective of possible interim price fluctuations or mark-to-market adjustments. For debt instruments, maturity value may also take into account amortized premiums or discounts, as well as any embedded options if applicable.
Governance in managing family wealth often requires transparent and precise valuation of holdings for risk management and asset allocation. The maturity value serves as a baseline for evaluating yield to maturity and comparing investment alternatives. It is also critical when structuring laddered portfolios or planning scheduled withdrawals, ensuring that cash requirements align with expected investment maturities.
An investor buys a bond with a face value of $10,000, an annual coupon interest of 5%, and a maturity period of 5 years. At the end of the 5 years (maturity date), the investor will receive the maturity value, which includes the $10,000 principal plus interest payments totaling $2,500 (5% of $10,000 annually times 5 years), assuming interest was paid annually. Therefore, the maturity value would be $12,500.
Maturity Date
Maturity Date is the specific calendar date on which the maturity value of a financial instrument is payable to the investor. It marks the endpoint of the investment's term.
What is the difference between maturity value and face value?
Face value, or par value, is the original principal amount of the financial instrument. Maturity value is the total amount payable at maturity, including face value plus any accrued interest or earnings.
Does maturity value change with market conditions?
No, maturity value is fixed as per the terms of the financial instrument and does not change with market fluctuations. However, the instrument's market value prior to maturity may vary based on interest rates and credit risk.
How is maturity value used in tax planning?
Maturity value assists in identifying realized income at the end of the investment term, which may trigger taxable events depending on the investment type and tax jurisdiction. Understanding maturity value helps in timing and planning for any capital gains or interest income tax liabilities.
