Recently, the 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 instrumentthat 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.
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