What is a zero coupon zero principal bond?

Social stock exchanges, which act as a platform to connect social enterprises with the public and help in raising funds for social welfare projects, are a segment of the existing stock exchanges such as BSE and NSE.

SEBI had permitted social enterprises registered on these exchanges to raise funds through zero coupon zero principal bonds in September last year. As the name suggests, ZCZP bonds do not give any interest, and investors will not get any money back on the maturity of the bond. The bond will mature when the project for which they are raised terminate, or 12 months from the date of allotment.

Also read: Tax Query: How are zero-coupon bonds taxed?

The ZCZP bonds issued by non-profit organisations are listed on the social stock exchanges. They are not available for trading in the secondary market, but they can be transferred to legal heirs since they are issued in dematerialised form.  

The minimum issue size for issue of ZCZP instruments is set at ₹1 crore and minimum application size is ₹2 lakh.

Similar ZCZP instruments issued by for-profit organisations can be listed on main board or SME platform of exchanges and are available for trading in secondary market.

What are the benefits of these ZCZP instruments?

There are obviously no pecuniary benefits from these instruments. It is akin to a donation made to a charity. But there is greater transparency about the objective of the social enterprise. The end use of the funds can also be monitored since the enterprises have to disclose details of money utilised and balance amount remaining to exchanges.

The listing provides visibility to the social enterprises and helps them to approach the public at regular intervals if they can show good outcomes.

What are the specifics of the Unnati zero coupon zero principal bonds?

This is a public issue of zero coupon zero principal bonds of face value of ₹1 each of ₹2 crore. The issue opened on October 30 and closed on November 7. The bonds will be listed on the NSE; it is the first such listing on social stock exchange in India and, therefore, NSE has been making a splash about it.

This listing will be displayed along with other such future bond issuances on the social stock exchange page on the NSE website.

What does the issuer, SGBS Unnati Foundation, do?

SGBS Unnati is a not-for-profit organisation formed in November 2011. The Unnati program of the foundation provides vocational training for the underprivileged and unemployed youth in the age group of 18 to 25 years. The UNXT Programme is a one-month programme providing training for final year students at government colleges. Sugam is a grassroot entrepreneurship accelerator helping non-urban youth to develop scalable businesses.

Why are the funds being raised?

The issue aims to train up to 10,000 graduating youth from government colleges in Uttar Pradesh, Madhya Pradesh, Karnataka, Andhra Pradesh and Tamil Nadu to help them secure employment. The youth will be trained for 165 hours, including 90 hours of classroom learning over a period of 30 days and 75 hours of self-learning content on a mobile application. Cost per head for training would be ₹2,000 per youth.