What is Held-To-Maturity ?
383 reads · Last updated: December 5, 2024
Held-to-maturity (HTM) securities are purchased to be owned until maturity. For example, a company's management might invest in a bond that they plan to hold to maturity. There are different accounting treatments for HTM securities compared to securities that are liquidated in the short term.
Definition
Held-to-Maturity (HTM) securities are those that an investor purchases with the intention of holding until they mature. This typically applies to fixed-income securities like bonds, where the investor plans to keep the investment until its maturity date rather than trading it on the market.
Origin
The concept of Held-to-Maturity originated from the evolution of accounting standards, particularly in the late 20th century. As financial markets became more complex and investment instruments diversified, bodies like the International Accounting Standards Committee (IASC) and the Financial Accounting Standards Board (FASB) began to define financial asset classifications more precisely.
Categories and Features
HTM securities mainly include bonds and other fixed-income securities. Their key feature is the investor's clear intent and ability to hold them until maturity. The accounting treatment for HTM securities differs from trading and available-for-sale securities, as they are typically measured at amortized cost on the balance sheet rather than fair value.
Case Studies
Case Study 1: A company purchased a batch of government bonds in 2020, intending to hold them until they mature in 2030. These bonds are classified as HTM securities in the company's financial statements and are measured at amortized cost. Case Study 2: A bank bought corporate bonds in 2018, planning to hold them until they mature in 2028. These bonds are also listed as HTM securities on the bank's balance sheet, reflecting its long-term investment strategy.
Common Issues
Common issues investors face when applying the HTM concept include: What happens if HTM securities are sold before maturity? Typically, this would lead to reclassification as trading or available-for-sale securities, potentially affecting the stability of financial statements.
