Zero-coupon Bond Investment
Zero-coupon Bond Investment
A zero-coupon bond is a unique debt instrument available at a discount that generates potential returns at redemption. Browse its options now!
A zero-coupon bond is a unique debt instrument available at a discount that generates potential returns at redemption. Browse its options now!
Explore zero coupon bonds
What Are Zero-Coupon Bonds?
Bonds without interest income, trading at a discount, are known as zero-coupon bonds. These are unique investments that generate returns based on the face value of the bond. One of the main purposes served through these types of bonds is capital protection. The difference between the face value of a zero-coupon bond and the discounted purchase price is the return on investment.
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All you need to Know about Zero-Coupon Bonds in India
How Does A Zero-Coupon Bond Work?
These debt instruments become unique because they lack the main character of a bond, which is a coupon rate or interest income. They do not generate a regular fixed interest income. However, they are issued and traded in the market at deep discounts. Due to this, when the investments are redeemed at maturity, the difference between the issued price and the par value is the gain.
Usually, the gain can be measured by yield to maturity or YTM. It can also help compare different zero-coupon bond options in the market. The YTM can be calculated as follows:
YTM = [{(F.V./I.V.)^(1/T)} - 1] * 100
Here,
F.V. = Face Value
I.V. = Investment Value
T = No. of years up to maturity
Let us understand the formula with this hypothetical scenario:
Mrs ABC is planning to buy a zero-coupon bond at INR 675, which has a face value of INR 1,000. The total number of years up to maturity is 5. Therefore, its YTM will be:
YTM = [{(F.V./I.V.)^(1/T)} - 1] * 100
YTM = [{(1000/675)^(⅕)} - 1] *100
YTM = 8.17%
Therefore, zero-coupon bond investment can generate significant returns at maturity along with providing capital protection during this period.
Types Of Zero-Coupon Bonds
Some of the common types of a zero-coupon bond are as follows:
Treasury Bonds
These are zero-coupon bonds issued by the government. However, some of these bonds also generate low-interest income.
Corporate Bonds
Corporate bonds are issued by corporations and zero-coupon bonds can be a significant source of capital for companies due to no interest obligation and fixed face value at redemption.
Separate Trading Of Registered Interest And Securities (STRIPS)
Here, the regular principal part and the interest payment are sold as different investment securities. Both parts will receive the final returns at maturity. Even the coupon part will receive due interest at maturity.
Municipal Bonds
These are zero-coupon bonds issued by the municipal corporation of a particular city. Usually, they procure funds for a specific development purpose in the municipality.
Key Features Of Zero-Coupon Bonds
Being a unique debt instrument, a zero-coupon bond can be characterised mainly by the following aspects:
Fixed Maturity Value
In these bonds, the redemption amount at the maturity is fixed at the face value of the bond. Investors do not earn any interest or a premium over this value. Therefore, it can be suitable for capital protection in the long term.
Pricing
Issued at a discount, investors can determine their suitable price based on their expected returns. The bond trading below this suitable price is suitable compared to the bond trading above this price. The bonds can be priced as follows:
Price = Par Value/[(1+expected annual interest rate)^number of years up to maturity]
Discounted Issue
The key nature of a zero-coupon bond is its discounted issue price. Investors can get deep discounts during the investment and determine the returns at maturity.
Returns
Investors earn a fixed return based on their discounted purchase price. However, there is no additional interest income in this investment.
Reinvestment Risk
Investors are certain about the value of their zero-coupon bond at maturity. Therefore, they can easily plan the reinvestment of this return. The risk of varying bond value due to market forces is eliminated.
Benefits Of Zero-Coupon Bonds
A zero-coupon bond investment can provide a unique exposure compared to the regular investments. Moreover, it can benefit investors in the following ways:
Investors can earn fixed returns at maturity.
Acquisition cost for the investments can be low compared to other types of bonds.
ts capital protection benefit can help investors plan for a significant financial objective and provide a secure base for the portfolio.
It provides the desired diversification.
Predictable returns eliminate the reinvestment risk.
Risks And Challenges Of Zero-Coupon Bonds
Investors willing to buy zero-coupon bonds should consider and manage some of its inherent risks:
It does not generate period income, which can be invested to compound the returns.
There is no specific coupon which can be compared while analysing the investment against the inflation.
The credit risk of the issuing authority may always lurk over the bond. Despite the fixed face value at maturity, this risk can affect the final returns.
The bond is less liquid due to its no-interest characteristic. Moreover, investors need to wait up to maturity to get a full return from the face value.
Who Should Invest In Zero-Coupon Bonds?
Generally, investors with a long-term approach and specific financial objective may find a zero coupon bond suitable. The risk-averse investors may fulfil their capital protection with such investment. Moreover, the discounted investment also provides a medium to earn a lump sum market return in the long run.
Taxation On Zero-Coupon Bonds
The absence of interest income significantly eliminates the Tax Deducted at Source (TDS) effect. However, on the maturity, the gains earned are taxed as follows:
Particulars
Short-term gains
Long-term gains
Listed Bonds
Income tax slab rate of the investor
(Held for less than 12 months)
12.5%
(Held for 12 months or more)
Unlisted Bonds
Income tax slab rate of the investor
How to Invest in Zero-Coupon Bonds in India?
Zero-coupon bonds can be easily purchased using a demat account. Investors can authenticate the issuance details and seek suitability to order the investment through depository participants directly or through brokers. Investors can directly invest in government zero-coupon bonds through the RBI Retail Direct website.
Conclusion
Are Zero-Coupon Bonds Right For You?
Investing in a zero-coupon bond can be a unique diversification for an investor’s portfolio. Investors can buy a zero-coupon bond at a deep discount rate and earn a predictable return at maturity. Moreover, it can help protect capital in the volatile market. However, investors need to manage the risk of credit default and liquidity.
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More about Zero-Coupon Bonds
FAQ's on Zero-Coupon Bonds
How are zero-coupon bonds different from regular bonds?
How are zero-coupon bonds different from regular bonds?
How are zero-coupon bonds different from regular bonds?
Who issues zero-coupon bonds in India?
Who issues zero-coupon bonds in India?
Who issues zero-coupon bonds in India?
How do zero-coupon bonds generate returns without interest payments?
How do zero-coupon bonds generate returns without interest payments?
How do zero-coupon bonds generate returns without interest payments?
Are zero-coupon bonds better than fixed deposits for long-term savings?
Are zero-coupon bonds better than fixed deposits for long-term savings?
Are zero-coupon bonds better than fixed deposits for long-term savings?
Who can invest in zero-coupon bonds?
Who can invest in zero-coupon bonds?
Who can invest in zero-coupon bonds?
Can NRIs invest in zero-coupon bonds in India?
Can NRIs invest in zero-coupon bonds in India?
Can NRIs invest in zero-coupon bonds in India?
Can I sell my zero-coupon bonds before maturity?
Can I sell my zero-coupon bonds before maturity?
Can I sell my zero-coupon bonds before maturity?
What are the risks of investing in zero-coupon bonds?
What are the risks of investing in zero-coupon bonds?
What are the risks of investing in zero-coupon bonds?
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Investments in debt securities/municipal debt securities/securitised debt instruments are subject to risks including delay and/or default in payment. Read all the offer related document carefully.
Procedure to file a complaint on SEBI SCORES- (i) Register on SCORES portal (ii) Mandatory details for filing complaints on SCORES: Name, PAN, Address, Mobile Number, E-mail ID (iii) Benefits: Effective communication, Speedy redressal of the grievances
i. Prevent Unauthorised transactions in your account --> Update your mobile numbers/email IDs with your Stock Brokers. Receive information of your transactions directly from Exchange on your mobile/email at the end of the day. Prevent Unauthorized Transactions in your demat account Update your Mobile Number with your Depository Participant. Receive alerts on your Registered Mobile for all debit and other important transactions in your demat account directly from NSDL/CDSL on the same day.
ii. There is no need to issue a cheque. Please write the Bank account number and sign the IPO application form to authorize your bank to make payment in case of allotment. In case of non allotment the funds will remain in your bank account. Issued in the Interest of Investor. Investments in securities market are subject to market risks; read all the related documents carefully before investing.
iii. KYC is one time exercise while dealing in securities markets - once KYC is done through a SEBI registered intermediary (broker, DP, Mutual Fund etc.), you need not undergo the same process again when you approach another intermediary.
iv. Investor awareness on fraudsters that are collecting data of customers who are already into trading on Exchanges and sending them bulk messages on the pretext of providing investment tips and luring them to invest with them in their bogus firms by promising huge profits.
v. Advisory for investors - Clients/investors to abstain them from dealing in any schemes of unauthorised collective investments/portfolio management, indicative/ guaranteed/fixed returns / payments etc.
Attention Investors:
1. Stock Brokers can accept securities as margin from clients only by way of pledge in the depository system w.e.f. September 01, 2020.
2. Update your email id and mobile number with your stock broker / depository participant and receive OTP directly from the depository on your email id and/or mobile number to create a pledge.
3. Check your securities / MF / bonds in the consolidated account statement issued by NSDL/CDSL every month. .......... Issued in the interest of Investors
SEBI: https://www.sebi.gov.in | NSDL: https://nsdl.co.in | CDSL: https://www.cdslindia.com | NSE: https://www.nseindia.com | BSE : https://www.bseindia.com | SMART ODR PORTAL: https://smartodr.in/login | SCORES 2.0: https://scores.sebi.gov.in | Sitemap
Made with love️ in India | Copyright © 2024, GripInvest
Download the Grip Invest App and stay connected 24/7
Get personalized deal recommendations
Gain insights on your portfolio performance
Receive instant updates and notifications
Grip Invest is a SEBI-regulated platform for high-yield, fixed-income investments like Corporate Bonds and SDIs. Our mission is to enable all Indians to invest in regulated, curated, diversified opportunities offering attractive, predictable returns.
Grip Broking Private Limited
Grip Broking Private Limited (U67120DL2023PTC410290), Member of NSE- SEBI Registration No.: INZ000312836, NSE Member Code: 90319
Registered Office: Flat No. 106, II Floor, New Asiatic Building, H Block, Connaught Place, New Delhi-110001
Corporate Office: Plot No. 3, Veritas Building, 6th Floor, Golf Course Road, Sector 53, Gurgaon-122003, Haryana
Compliance Officer: Ms. Jyotsna; Contact No: +91 93555 90389; Email id: complianceofficer@gripinvest.in
Investments in debt securities/municipal debt securities/securitised debt instruments are subject to risks including delay and/or default in payment. Read all the offer related document carefully.
Procedure to file a complaint on SEBI SCORES- (i) Register on SCORES portal (ii) Mandatory details for filing complaints on SCORES: Name, PAN, Address, Mobile Number, E-mail ID (iii) Benefits: Effective communication, Speedy redressal of the grievances
i. Prevent Unauthorised transactions in your account --> Update your mobile numbers/email IDs with your Stock Brokers. Receive information of your transactions directly from Exchange on your mobile/email at the end of the day. Prevent Unauthorized Transactions in your demat account Update your Mobile Number with your Depository Participant. Receive alerts on your Registered Mobile for all debit and other important transactions in your demat account directly from NSDL/CDSL on the same day.
ii. There is no need to issue a cheque. Please write the Bank account number and sign the IPO application form to authorize your bank to make payment in case of allotment. In case of non allotment the funds will remain in your bank account. Issued in the Interest of Investor. Investments in securities market are subject to market risks; read all the related documents carefully before investing.
iii. KYC is one time exercise while dealing in securities markets - once KYC is done through a SEBI registered intermediary (broker, DP, Mutual Fund etc.), you need not undergo the same process again when you approach another intermediary.
iv. Investor awareness on fraudsters that are collecting data of customers who are already into trading on Exchanges and sending them bulk messages on the pretext of providing investment tips and luring them to invest with them in their bogus firms by promising huge profits.
v. Advisory for investors - Clients/investors to abstain them from dealing in any schemes of unauthorised collective investments/portfolio management, indicative/ guaranteed/fixed returns / payments etc.
Attention Investors:
1. Stock Brokers can accept securities as margin from clients only by way of pledge in the depository system w.e.f. September 01, 2020.
2. Update your email id and mobile number with your stock broker / depository participant and receive OTP directly from the depository on your email id and/or mobile number to create a pledge.
3. Check your securities / MF / bonds in the consolidated account statement issued by NSDL/CDSL every month. .......... Issued in the interest of Investors
SEBI: https://www.sebi.gov.in | NSDL: https://nsdl.co.in | CDSL: https://www.cdslindia.com | NSE: https://www.nseindia.com | BSE : https://www.bseindia.com | SMART ODR PORTAL: https://smartodr.in/login | SCORES 2.0: https://scores.sebi.gov.in | Sitemap
Made with love️ in India | Copyright © 2024, GripInvest
Grip Invest is a SEBI-regulated platform for high-yield, fixed-income investments like Corporate Bonds and SDIs. Our mission is to enable all Indians to invest in regulated, curated, diversified opportunities offering attractive, predictable returns.
Grip Broking Private Limited
Grip Broking Private Limited (U67120DL2023PTC410290), Member of NSE- SEBI Registration No.: INZ000312836, NSE Member Code: 90319
Registered Office: Flat No. 106, II Floor, New Asiatic Building, H Block, Connaught Place, New Delhi-110001
Corporate Office: Plot No. 3, Veritas Building, 6th Floor, Golf Course Road, Sector 53, Gurgaon-122003, Haryana
Compliance Officer: Ms. Jyotsna; Contact No: +91 93555 90389; Email id: complianceofficer@gripinvest.in
Investments in debt securities/municipal debt securities/securitised debt instruments are subject to risks including delay and/or default in payment. Read all the offer related document carefully.
Procedure to file a complaint on SEBI SCORES- (i) Register on SCORES portal (ii) Mandatory details for filing complaints on SCORES: Name, PAN, Address, Mobile Number, E-mail ID (iii) Benefits: Effective communication, Speedy redressal of the grievances
i. Prevent Unauthorised transactions in your account --> Update your mobile numbers/email IDs with your Stock Brokers. Receive information of your transactions directly from Exchange on your mobile/email at the end of the day. Prevent Unauthorized Transactions in your demat account Update your Mobile Number with your Depository Participant. Receive alerts on your Registered Mobile for all debit and other important transactions in your demat account directly from NSDL/CDSL on the same day.
ii. There is no need to issue a cheque. Please write the Bank account number and sign the IPO application form to authorize your bank to make payment in case of allotment. In case of non allotment the funds will remain in your bank account. Issued in the Interest of Investor. Investments in securities market are subject to market risks; read all the related documents carefully before investing.
iii. KYC is one time exercise while dealing in securities markets - once KYC is done through a SEBI registered intermediary (broker, DP, Mutual Fund etc.), you need not undergo the same process again when you approach another intermediary.
iv. Investor awareness on fraudsters that are collecting data of customers who are already into trading on Exchanges and sending them bulk messages on the pretext of providing investment tips and luring them to invest with them in their bogus firms by promising huge profits.
v. Advisory for investors - Clients/investors to abstain them from dealing in any schemes of unauthorised collective investments/portfolio management, indicative/ guaranteed/fixed returns / payments etc.
Attention Investors:
1. Stock Brokers can accept securities as margin from clients only by way of pledge in the depository system w.e.f. September 01, 2020.
2. Update your email id and mobile number with your stock broker / depository participant and receive OTP directly from the depository on your email id and/or mobile number to create a pledge.
3. Check your securities / MF / bonds in the consolidated account statement issued by NSDL/CDSL every month. .......... Issued in the interest of Investors
SEBI: https://www.sebi.gov.in | NSDL: https://nsdl.co.in | CDSL: https://www.cdslindia.com | NSE: https://www.nseindia.com | BSE : https://www.bseindia.com | SMART ODR PORTAL: https://smartodr.in/login | SCORES 2.0: https://scores.sebi.gov.in | Sitemap
Made with love️ in India | Copyright © 2024, GripInvest
more about Zero COupon bond
All you need to Know about Zero-Coupon Bonds in India
How Does A Zero-Coupon Bond Work?
How Does A Zero-Coupon Bond Work?
How Does A Zero-Coupon Bond Work?
Types Of Zero-Coupon Bonds
Types Of Zero-Coupon Bonds
Types Of Zero-Coupon Bonds
Key Features Of Zero-Coupon Bonds
Key Features Of Zero-Coupon Bonds
Key Features Of Zero-Coupon Bonds
Benefits Of Zero-Coupon Bonds
Benefits Of Zero-Coupon Bonds
Benefits Of Zero-Coupon Bonds
Risks And Challenges Of Zero-Coupon Bonds
Risks And Challenges Of Zero-Coupon Bonds
Risks And Challenges Of Zero-Coupon Bonds
Who Should Invest In Zero-Coupon Bonds?
Who Should Invest In Zero-Coupon Bonds?
Who Should Invest In Zero-Coupon Bonds?
Taxation On Zero-Coupon Bonds
Taxation On Zero-Coupon Bonds
Taxation On Zero-Coupon Bonds
How to Invest in Zero-Coupon Bonds in India?
Zero-coupon bonds can be easily purchased using a demat account. Investors can authenticate the issuance details and seek suitability to order the investment through depository participants directly or through brokers. Investors can directly invest in government zero-coupon bonds through the RBI Retail Direct website.