SEBI Permits Smaller Denominations for Zero-Coupon Bond Issues

The Securities and Exchange Board of India has allowed issuers to offer zero coupon bonds in lower denominations of ₹10,000 by revising the conditions governing private placements of non-convertible debt securities and non-convertible redeemable preference shares. 

Regulatory Change and Market Impact 

Earlier, SEBI had allowed issuers to reduce the face value of privately placed debt instruments to ₹10,000 only if they were interest or dividend bearing with a fixed maturity and without structured obligations.  

This framework effectively excluded zero coupon bonds, as they do not provide periodic interest payments. 

Following representations from market participants, the regulator acknowledged that zero coupon bonds operate differently. These instruments are issued at a discount and redeemed at face value, with investor returns arising from price appreciation rather than regular coupons.  

SEBI noted that such bonds offer compounded returns over the investment period. 

Investor Relevance 

According to the regulator, zero coupon bonds are increasingly used by investors for diversification purposes, particularly by those seeking long-term, predictable returns without interim cash flows.  

Allowing issuance in smaller denominations is expected to broaden investor access to these instruments in the private placement market. 

Read More: SEBI Board Meeting Outcome: Overhaul of Mutual Funds to Stock Brokers Regulations! 

Conclusion 

The move is likely to enhance flexibility for issuers and improve participation in India’s corporate bond market by making zero coupon bonds more accessible. 

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