Debentures may be redeemed by a company out of which of the following?

Out of Profit Out of Capital Both 1 and 2 None of these

Both 1 and 2

A company has the option to source the funds for the redemption of its debentures from either its capital or its profits. According to the Companies Act, certain categories of companies, including all India financial institutions registered by the Reserve Bank of India, banking companies, non-banking financial companies (NBFCs) registered with the Reserve Bank of India, housing finance companies registered with the National Housing Bank, and companies listed on stock exchanges, as well as unlisted companies, are exempted from the requirement to create a Debenture Redemption Reserve (DRR). Instead, they are allowed to redeem debentures directly out of their capital. However, for "other unlisted companies" (companies that do not fall into the exempted categories), the Companies Act mandates that the adequacy of the Debenture Redemption Reserve should be maintained at ten percent of the value of the outstanding debentures. This reserve is created to ensure that funds are set aside to cover the redemption of debentures when they mature.