Zero Coupon Bonds: Investing in bonds is a great option in front of investors who stay away from the ups and downs of the market. Both the government and companies issue bonds to raise money, in which investors have a written guarantee of returns. One such investment option is Zero Coupon Bond which is issued at huge discount and the investors get the face value of the bond at the time of maturity. Thus, the return on investment in these bonds is the difference between the purchase price and the face value, that is, a great lump sum return on investment can be obtained even if there is no interest.
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Benefits of Investing in Zero Coupon Bonds
- Investing in zero coupon bonds helps in meeting long term goals. A lump sum amount can be arranged on the occasion of higher education and marriage.
- The option of guaranteed returns over a specified period is secured through investing in zero coupon bonds.
- For investing in this, investors always have to pay less than the face value. Before maturity, these bonds trade at a discount and never at a premium.
- Most of the zero coupon bonds offer a fixed amount which is equal to the face value of the bonds, but there are some bonds which are indexed on the basis of inflation i.e. the amount that will be received on the basis of inflation is higher than the current face value. Might be possible.
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- In this, capital gains tax is levied on the investment which is calculated at the time of maturity.
- Talking about government institutions, apart from NABARD, there are only a few government institutions (such as Rural Electrification Corporation-REC) that can issue it after the approval of the Ministry of Finance.
(input: cleartax)
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