In July 2022 Government of India has designated “Zero Coupon Zero Principal Instruments” as securities.
This is in line with government’s preparation for the creation of a social stock exchange.
About the decision
- What has happened: Zero Coupon, Zero Principal bond declared as Securities
- Declared on: 15 July 2022
- Declared by: Ministry of Finance , Government of India
- Purpose: Fund raising for Social Stock Exchange
- Bond: A bond is a fixed-income instrument that represents a loan made by an investor to a borrower (typically corporate or governmental).
- Bonds are used by companies, municipalities, states, and sovereign governments to finance projects and operations.
- The interest payment (the coupon) is part of the return that bondholders earn for loaning their funds to the issuer.
- The interest rate that determines the payment is called the coupon rate.
- Difference between Regular Bond and Zero Coupon, Zero Principal Bond: A regular bond pays interest to bondholders, while a zero-coupon bond does not issue such interest payments. Instead, zero-coupon bondholders merely receive the face value of the bond when it reaches maturity.
What will happen when they are declared as securities
- According to the notification, “zero coupon zero principal instruments” have been designated as securities for the purposes of the Securities Contracts (Regulation) Act, 1956.
- After this these bonds will be governed by rules applied by SEBI on them.
- Fund raising through these bonds
- In September 2021, SEBI’s board cleared a framework for SSE for fund raising by social enterprises.
- Non Profit Organisations(NPOs ) and for-profit social enterprises -- having social intent and impact as their primary goal will be able to list on SSE to raise fund.
- It has been proposed that eligible NPOs may raise funds through equity, zero coupon zero principal bonds, mutual funds, social impact funds, and development impact bonds.