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Economy and Finance

Economy and Finance

Zero Coupon, Zero Principal Instrument

27 Nov 2023 Zinkpot 156
  1. A "zero-coupon, zero-principal" instrument is a financial instrument issued by a non-profit organization that can be used to raise funds. It is a type of bond-like debt asset that resembles a debt security but with a different structure. 
  2. When an entity issues this type of instrument and raises money, it is not a loan but a donation. Therefore, the borrowing organization is not required to pay interest (hence, zero coupon), and it is also not required to pay the principal amount (hence, zero principal).
  3. The Indian government has declared this type of instrument as a security that can be listed on a particular stock exchange, and it is regulated by the Securities and Exchange Board of India (SEBI) regulations. 
  4. The minimum issue size of zero-coupon, zero-principal instruments needs to be not less than Rs one crore, and the minimum application size needs to be Rs 2 lakh.
  5. Like any other debt instrument, it will come with a time duration. These bonds will carry a tenure equal to the duration of a given project.
  6. ‘Zero-coupon, zero principal’ instrument means an instrument issued by a Not-for-Profit Organisation (NPO) that will be registered with the Social Stock Exchange (SSE) segment of a recognized stock exchange.
  7. A Social Stock Exchange (SSE) is an electronic fund-raising platform that allows social enterprises, both non-profit and for-profit, to raise capital by attracting ethical investors willing to invest in organizations with a dual corporate and social focus.
     

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