Zero-Coupon Bonds

Zero-Coupon Bonds Latest News

Recently, Power Finance Corporation withdrew zero-coupon bonds issuance due to weak investor demand.  

About Zero-Coupon Bonds

• These are a debt instrument that does not pay periodic interest but is issued at a discount rate to its face value.
• These are also known as discount bonds, are issued at a discount on the bond’s face value and do not pay periodic interest to bondholders.
• They offer payment at face value at maturity so zero-coupon bonds tend to fluctuate in price on the secondary market much more than coupon bonds.

Advantages of Zero Coupon Bonds

• Varied investment horizon: These bonds suit investors with long-term and short-term investment motives.
• Less risky: These bonds are considered less risky than coupon bonds, as the investors have to buy and leave them until maturity. 

Disadvantages of Zero Coupon Bonds

• Period: It is only suited for long-term investment purposes. People with short-term motives cannot invest in these bonds.
• No regular income: The investor does not get a fixed, steady income from such bonds.

What is a Bond?

• A bond is a financial instrument that promises a fixed return (face value) at the end of a specific period, unlike equity, which has no fixed term or guaranteed returns.
• Bonds are generally safer investments used to hedge against risks or act as a store of value.
• Bonds are used by companies, municipalities, states and sovereign governments to raise money to finance a variety of projects and activities.

 Source: BS