What Are Zero Coupon Zero Principal Bonds?

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What Are Zero Coupon Zero Principal Bonds?
What Are Zero Coupon Zero Principal Bonds?
Aaron Varghese Charly - 30 December 2023

SGBS Unnati Foundation, a not-for-profit organisation (NPO) made history in December 13, 2023 as the first entity to be listed on the National Stock Exchange’s (NSE) Social Stock Exchange (SSE)  with the issuance of zero coupon zero principal (ZCZP) bonds worth Rs 2 crore. ZCZP bonds differ from usual bonds as they contribute towards a social cause. These bonds are not for investment but are meant for charity as they do not generate any financial gain for the investor like other usual bonds. There is no tax imposed on the purchase of these bonds. So, why opt for these over direct donations to organisations?

How do they work?

  • ZCZP bonds are issued on SSE, a platform that enables social businesses and NPOs to raise funds from investors who want to invest money towards a social cause.
  • NPOs can issue ZCZP bonds with a total issue size starting from Rs 50 lakh, and individuals can buy these bonds for a minimum amount of Rs 10,000.
  • Capital markets regulator Securities and Exchange Board of India allows entities to disclose their past social impact reports in fundraising documents. This stipulation adds transparency and accountability to the fund raising process of the NPOs.

Do they stand apart?

  • These offer transparency and accountability on how the donation is used. Enterprises have to disclose details of money utilised and the balance amount to the exchange.
  • An NPO needs to meet strict criteria to get on board a stock exchange, which increases the chances of it being genuine.
  • NPOs can show good outcomes  in their fundraising documents and approach interested investors more confidently.
  • The organisations on the SSE  undergo audits and share their social impact with stakeholders from time to time.

What’s in it for you?

  • ZCZP bonds are meant for charity that can help underprivileged people served by the exchange listed NPOs.
  • Investors can understand the intended purpose of their contributions and gain visibility on how the funds are utilised for a social cause.
  • People investing money in these bonds can be assured that money is used for a noble cause and not siphoned.
  • A less than miimum required subscription (75 per cent of the proposed fund raise) can be a red flag for donors.
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