News: State-owned PFC has withdrawn its planned issuance of zero-coupon bonds for the second time in over a month, as investors demanded higher yields. Zero-Coupon Bond.
About Zero-Coupon Bond
- A zero-coupon bond is a type of debt instrument that does not pay periodic interest.
- It is also known as the discount bond.
- Instead, it is issued at a deep discount and redeemed at its full face value upon maturity, with the profit being the difference between the purchase price and the maturity value.
- Types: There are two types of Zero Coupon Bonds, which are corporate Zero Coupon bonds and Government Zero Coupon bonds.
- Suitable tenure for Zero Bond Coupon
- The time and the maturity value of Zero Coupon bonds share a negative correlation.
- The longer until the maturity date, the less the investors have to pay for it.
- Therefore, the Zero Coupon bonds generally come with a time horizon of 10 to 15 years.
- On the other hand, these bonds with a time period of less than one can be a short-term investment option.
- Taxability
- Taxability of zero-coupon bonds depends on the issuer organisation.
- Maturity and premature withdrawal of certain types of zero-coupon bonds are subject to tax under “Capital gain”.
- Otherwise, only the interest part is taxable on its maturity under “Income From Other Sources”.
