Zero-coupon bonds are gaining attention among investors seeking to meet specific long-term financial goals. Unlike traditional bonds, they don’t pay periodic interest but are issued at a deep discount and redeemed at face value upon maturity. This structure makes them ideal for funding future needs like education, retirement, or housing.
For investors with clearly defined financial milestones, zero-coupon bonds present a compelling option. These instruments differ from conventional bonds by offering no regular interest payouts. Instead, they are sold at a significant discount and redeemed at full face value upon maturity, ensuring predictable returns.
Financial experts highlight that zero-coupon bonds are particularly suited for long-term planning, as their maturity dates can be aligned with specific goals such as children’s education, retirement corpus, or major life events. The absence of reinvestment risk and guaranteed payout at maturity makes them attractive to conservative investors.
However, investors should be mindful of tax implications, as accrued interest is often taxable annually, even though no cash flow is received until maturity. Additionally, liquidity can be limited compared to other instruments, making them best suited for those comfortable with a buy-and-hold strategy.
Key Highlights / Major Takeaways
Issued at discount, redeemed at face value on maturity
Ideal for long-term goals like education, retirement, housing
No periodic interest payouts, reducing reinvestment risk
Taxable accruals despite no annual cash flow
Best for investors with a buy-and-hold mindset
Sources: Economic Times, Moneycontrol, Business Standard