Did you know that bonds became available for investors much before shares? Organizations used to raise money with a written guarantee of the promise of paying it all back with interest. This guarantee is referred to as a bond. Now, let me answer your query on what is a zero coupon bond.
Zero Coupon BondsA coupon is a periodic interest that a bondholder receives from the time of the bond’s issuance till maturity. A zero coupon bond, also referred to as a discount bond, doesn’t pay any interest to the bondholder. Instead, the bondholder gets a huge discount on the bond’s face value.
On maturity, bondholders receive the face value of their investment. In simple terms, investors buying zero coupon bonds profit from the difference between the purchasing price and the face value, contrary to the usual interest income.
I hope now you know the zero coupon bond meaning.
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Should I Invest in Zero Coupon Bonds?The definition of zero coupon bonds suggests the absence of regular interest payments to those who invest in them. You should keep this in mind before investing in them. These are perfect for those who’d need funds at a particular period of time in the future, such as a planned tour, retirement, or children’s education.
Also, if you don’t like to watch the market trends and follow the ‘invest and forget’ strategy, then you can opt for zero coupon bonds. If your investment portfolio mainly includes growth investments and you’re planning to add diversity to it, then zero coupon bonds can help you get a guaranteed return for a particular time period.
Finally, zero coupon bonds tend to give huge discounts for longer tenures of investment and are ideal for long-term investment plans.
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I hope I cleared all your doubts about what is a zero coupon bond meaning.
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What is a zero coupon bond?
Jai
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2022-05-18T18:43:13+00:00 2022-05-19T18:47:30+00:00Comment
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