Zero Coupon Bond (ZCB)

What is a Zero Coupon Bond?

The Xero coupon bonds are also known as the discount bonds. The reason behind this is that they are issued at a discounted value from the bond's face value. They do not pay the periodic interest to the holders of this bond.

At the time of maturity, the holders will get the face value of these bonds. These types of investments involve less risk and are safe for beginners in this field.

Who Should Invest in ZCB?

Investors with specific needs and financial goals typically invest in a zero-coupon bond. Here are a few of them:

• Long-term investors: These types of bonds are appropriate for those investors who are not looking for short-term benefits. They must be hoping for the lump sum amount in the future.
• Risk-averse investors: These types of bonds are less risky because they need to be kept until their maturity period. You will get the benefits after the date of its maturity. It is best for conservative investors.
• Portfolio diversification: Some of the investors invest in these bonds because they want some diversification in their portfolios.

Advantages of ZCB

There are many advantages of the zero coupon bond. Here are a few of them:

• Returns are guaranteed: There are fixed returns in the zero-coupon bonds if they are held until maturity. Investors are already aware of how much they are going to receive at the end of the month. It also helps them in planning their financial goals.
• Long-term horizon: These types of bonds are perfect for those investors who want to invest long-term. The date on which they are going to receive the amount is predetermined for them. It makes it easy for them to plan financially.
• No risk for reinvestment: These are not like the regular bonds; the zero-coupon bonds eliminate the factor of risk in reinvesting at the lower rates. As there are no periodic payments involved, you don't have to find new investment opportunities.